When you look at credit card rates versus traditional loans, you will be shocked at the difference. On average, there is a significant difference with credit card rates being much higher than traditional loans. This difference is enough to cause wise consumers to choose traditional loans over credit cards for many types of purchases.
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The length of time you need to pay off a purchase is a huge factor in whether a credit card or a traditional loan is what you should consider. Many traditional loans charge higher interest rates for shorter periods. In addition, with many lenders there are fees associated with paying off a balance early, while credit cards have no such penalty.
Know the Rates
The type of loan or credit card you are looking for and where you are looking for it can impact the interest rate in a big way. Credit unions offer rates as low 1.99% on new vehicle loans, 2.25% on used vehicle loans, 2% on savings secured loans, and anywhere from 6.5% to 14.25% for luxury recreation purchases like motorcycles, boats, RVs, and aircraft. Even a variable rate line of credit starts at 10.99%
Typical banks offer rates starting at 4.49% on new vehicle loans, 5.24% on used vehicle loans, 6.66% on secured personal loans, 10.66% on unsecured personal loans, 9% on unsecured line of credit, and 7.25% on secured lines of credit. While higher than credit unions, they are still a good choice for many financial needs.
When it comes to credit cards, typical banks start their rates around 10.15% and they can go as high as 25.99%.
Credit union credit cards can start as low as 6%. Credit card issuers that only deal in credit cards tend to have even higher rates, starting at 10.99% for some to as much as 19.95% for others.
However, choosing a credit card is not only about rates. To find a top quality credit card, check out the J.D. Power and Associates credit card satisfaction study.
When You Should Choose a Credit Card Instead of a Traditional Loan
If you are a disciplined consumer who pays off their credit card at the end of each month, choosing a credit card for many of your purchases can actually be very beneficial. A credit card with a lucrative rewards program can allow you to earn a variety of things, from cash back to travel rewards and more, without changing your consumption habits. If you can pay off a credit card at the end of the month and earn your rewards without it costing you anything, making purchases with a credit card is a good idea.
If you are looking to get a new credit card with an introductory 0% APR offer on purchases, you may want to make certain bigger purchases with that credit card. If you are completely sure that you will be able to pay off the amount before interest begins to be charged, using a credit card will allow you to earn points and save on interest on your purchase over opting for a traditional loan.
Credit cards are a great choice for short-term cash flow problems. Getting a traditional loan takes time and requires a credit inquiry, while you may already have an available credit card that you can use for convenience.
What Can Affect Your Credit Card Rates and Traditional Loan Rates
One of the most significant factors when it comes to your credit card rates is your actual credit score and credit history. Together they are evaluated by potential lenders who decide on your credit worthiness based on this information. Not only will this decide whether you are actually eligible for a credit card or a loan, it will also determine the rate you qualify for if you are deemed eligible.
Those with considered high risk will be charged higher rates of interest than those who are deemed to have good credit worthiness.
Before you start shopping around for credit cards or traditional loans, it is wise to check out your credit report. There could be errors or omissions on it that may cause you to be turned down or have to pay higher interest. Checking your report and correcting anything that needs to be corrected or waiting to apply for new credit while you improve your score is wise financially. You can access your credit report for free once a year from the major credit reporting bureaus, Equifax, Experian, and TransUnion.
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