Borrowing money is something that all Australians do. When we don’t have the cash for something we need or want, we pay an institution to lend us the money. And that’s it! Sounds simple, doesn’t it? However, with our fast-paced world, littered with roadblocks and advertisements, it can be difficult to know which lending practices are right for you. If you’re in search of quick or instant cash, personal loans and credit cards are your most viable options, but, which is better?

Well, that’s what we are going to investigate. A comparison is always a balancing act, weighing up the disadvantages and the advantages of each option. So, let’s take a look at the scales.

Firstly, what are personal loans?

Personal loans are typically small loans ranging from pocket change ($100) to the cost of a second-hand car ($5,000). Most lenders require you to repay your loan within 1-5 years. Some lenders are more flexible than others with loan terms. We’ll tackle the art of the personal loan comparison later on.

Firstly, let’s tackle the main two types of personal loans; unsecured personal loans and secured personal loans.

Types of personal loans

  • Unsecured loans: An unsecured personal loan is typically small personal loans, that is not “secured” by equity. Unsecured personal loans are less risky for the borrower, as there is no chance of repossession. However, as the lender assumes more risk with unsecured personal loans, they tend to charge higher interest rates.
  • Secured personal loans: Secured personal loans are personal loans that are secured by equity, such as a motorbike, car, boat or caravan. With a secured personal loan, the risk lies with the borrower, as if you default on your personal loan, the lender has the power to repossess your equity. On the plus side, as the risk is less for the lender, the interest rates tend to be lower.

When looking to borrow a personal loan, you’ll mostly come across both these options. With all this choice, you may find yourself wondering which is best, however, it depends on the reason for your cash loan. If you’re looking to borrow a small personal loan to tie over your monthly expenses, then an unsecured personal loan is right for you. On the flip side, perhaps you’re hunting for a used car, and need an extra fund boost, then a secured personal loan would be the perfect fit.

As you can see, personal loans are primarily based on what your financial situation is and the reason for your loan enquiry.

How to apply for personal loans?

You may be thinking “All this sounds like what I need, but surely applying for a loan is stressful and complicated.” Before the birth of the internet, you would be required to travel to the bank and wait in endless queues to apply for personal loans. However, the internet has gifted the world of finance with a platform to make borrowing easy. There is a myriad of personal loan lenders who are 100% online (Nifty being one!). So, say goodbye to red tape and mountains of paperwork. Knock, Knock it’s the future calling!

What is a credit card?

Most Australians over the age of 18 own either a debit card or credit card. Know before we dive into credit cards, it’s important to note the difference between a debit card and a credit card. A debit card doesn’t allow you to borrow credit. You only have access to the funds in the bank account connected to the card.

When you make a purchase with a credit card, you may decide to borrow credit to pay. Once, you’ve used this credit, the credit card company then charges you interest on your purchase. Typically, credit cards incur high-interest rates, however, they are a handy line of revolving credit.

How to apply for a credit card?

With the beauty of the internet, credit card applications, (like personal loans) are also online! You can apply for the comfort your living room over breakfast or on the commute to work. Before thinking about applying for a credit card, take a look at these 3 simple steps:

  1. Compare credit cards
  2. Access their online application and read through it, check that you meet all the minimum requirements
  3. Fill in the application, making sure all the information is correct, then hit send!

With the power of online convenience, financial applications are accessible to anyone, no matter where you are or what you’re doing.

Looking at the scales: Personal loans and credit cards

So, personal loans or a credit card? Should you charge your latest expenses to a credit card, or take out a quick personal loan? These questions are what we’ll try to settle. Nifty may be 100% online, but we’re old fashioned at heart, so we’re going to use the classic pros and cons scenario to compare personal loans and credit cards.

Advantages of personal loans

The advantages that stand out amongst all the others for personal loans is lower interest rates. That means you spend less money on interest! Interest is essentially a fee for ‘renting’ moolah from a financial lender. Of course, lower interest rates can vary depending on which financial lender you choose. (We may be biased, but Nifty has stella interest rates!)

Personal loans come with an end in sight! When you apply for personal loans, you set an amount a time in which to repay your debt. That gives you a date on your calendar to celebrate being debt free!

With lower interest rates and fewer fees, personal loans are typically cheaper in the long run, when compared with credit cards. That means more money for the things you love!
Budgeting your loan repayments into your weekly, fortnightly or monthly budget will see your loan repaid in no time! The trick with budgeting is to stick it to. If you do that, then you won’t be tempted to spend your funds allocated to repayments. Therefore, personal loans are the ticket to saving and halting those impulsive buys when you can’t (really) afford them.

You can use personal loans to consolidate your debt. Debt consolidation is simply the act of combining multiple loans into a single low-interest rate low. Of course, this does increase your monthly repayments, however, it will be cheaper in the long run.

Disadvantages of personal loans

Of course, like everything in life, there are disadvantages to taking out personal loans to pay for expenses.

Personal loans are only for a finite amount of time. If you require an extra boost to your funds again, you must apply for another personal loan. Applying for several personal loans, especially within a short period of time, may have a negative effect on your credit score. If your credit score is already bad, perhaps multiple personal loans are not the right option for you. Don’t fret though, we have a secret solution for you: debt consolidation – but we’ll take more about that later.

Compared to credit cards, personal loans are less flexible. Once you sign a small loan contract, you are obligated to keep it. Most lenders charge an early exit fee if you repay your loan off early (not Nifty though).

These disadvantages are important to consider when deciding between a personal loan and credit card for your finance needs.

Advantages of credit cards

Let’s take a look at credit cards. Credit cards are a variable option if you’re searching for a borrowing platform, however, are they better value compared to personal loans? Let’s find out!

After you apply and are approved for a credit card, you have an immediate line of credit to spend. It’s an instant transfer of moolah! So, if you’re in need of something urgently, a credit card is an ideal option.

And now, our favourite advantage of credit cards is the rewards! Who doesn’t want to be rewarded for spending money? It’s the ultimate dream. Well, with credit cards it can be a reality. The rewards and how many you earn will depend on which credit card company you choose and how much you spend. It’s certainly a massive plus, with couples claiming they paid for their honeymoon with credit card rewards.

Besides an abundance of rewards, credit cards also provide a constant flow of cash. With a constant line of credit, you can spend your credit whenever you want and whenever you want.

Disadvantages of credit cards

With all these great advantages, there are certainly some disadvantages to owning a credit card.

Credit cards can leave you caught in a cotton wash cycle that never ends. Credit cards provide constant access to funds and hence, the temptation to spend and incur credit is very high. Obsessively using credit cards to make impulsive purchases can lead to a cycle of unmanageable debt. Monthly credit card bills only require a minimum payment, which can contribute to a cycle of debt.

Credit cards traditionally carry higher interest rates, compared to personal loans. As a result, you spend more in the long run if you always use a credit card for large expenses.

You know you best!

Here are some questions to ask yourself when you’re considering personal loans or credit cards.

  1. Why are you applying to borrow money?

    If you are looking to make a large purchase (up to $5,000), then perhaps personal loans are more appealing. With lower interest rates, personal loans will cost less in the long run.

    If you’re simply looking to pay for few oddball expenses with a line of credit, then a credit card might be your best option. And don’t forget the rewards!

  2. How do you manage your repayments?

    As we have mentioned before, personal loans come with an end date, whereas credit card debt can be never-ending. So, consider your current financial commitment and see how flexible you are. Can you stick to a repayment budget? If so, then make it fun! Design a budget that is more like a vision board. Something you enjoy looking at and interacting with. Whether it’s on the computer or hanging in your kitchen.

  3. Are you consolidating your debt?

    If the answer is yes, then consider a personal loan. Some lenders allow you to transfer credit card debt over to a personal loan. Before consolidating your debt, shop around for the most suitable option for you. ASIC’s Money Smart is always a good place to start your search for anything finance.

Bad credit and personal loans

Online lenders (like us!) are traditionally more lenient than traditional lenders, (like the big banks). Nifty Loans does adhere to responsible lending practices, and would never approve an applicant that couldn’t afford their loan repayments. Furthermore, we think every Australian deserves the right to invest in their finances, even those who suffer from bad credit.

That’s why we offer bad credit personal loans.

When we assess our applications, we take a complete snapshot of your finances, including your past and present. If you’ve been receiving a regular income for the last 90 days, then you may be eligible for bad credit personal loans!

The Verdict

When it comes to making tough financial decisions, it always comes down to your individual circumstance. However, hopefully, this breakdown of personal loans and credit cards has given you a good idea about what you need.

Remember before making your decision between personal loans and credit cards, keep these tidbits in mind:

  • Interest and comparison rates
  • Fees
  • Your financial circumstances

Consider all your options before making a decision and remember that our loan specialists are always ready for a chat.

Let’s keep in touch

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How much cash do you want?
How long do you want it for?

Loans from $2100 to $5000 require a car, motorbike, boat or caravan to be provided as security. If you cannot provide security, please apply for $2000 or less.

Loans from $2100 to $5000 require a car, motorbike, boat or caravan to be provided as security. If you cannot provide security, please apply for $2000 or less.

Repayments

The Interest Rate for Secured Medium Loans is 48%. Maximum Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Click here to see a worked example.

The Interest Rate for Secured Large Amount Loans is 21.24%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Click here for a worked example

The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on our loans between $300 and $2000 is 199.43%. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Click here for a worked example