Many of
the things you might use an unsecured loan to buy could
also be paid for with a credit card. But there are
important differences between an unsecured loan and a
credit card that you should know about first.
Credit
Cards:
-
Interest rates on credit cards are often higher than
for unsecured loans, with even higher rates if you
take a cash advance from your credit card holder. In
addition, if you are late with a payment on your
credit card, the organization that issued the card
can increase your interest rate and impose a late
fee plus finance charges.
-
If you
continue to make charges on your account, your
balance and monthly payment will rise.
-
Credit
cards offer you the option to pay a minimum amount
due every month rather than the full balance, but
paying just the minimum means you take longer to pay
off your debt and will pay more in interest over
time.
-
Carrying a large balance on your credit cards can
lower your credit rating.
Unsecured Loans:
-
Unsecured loans typically have fixed interest rates
and monthly payments, so the lender cannot raise
your interest rate or increase your monthly payment
at any time.
-
With
an unsecured loan, you have the full term of the
loan, which is often several years, to pay back what
you borrowed without having to pay additional fees
and interest if you pay on time.
-
You
receive the total amount of your loan when you are
approved. There is no way to add to the amount you
borrowed over time, so your balance decreases over
time if you make your payments on time.
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