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 is personal finance?
Personal finance generally refers to 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 comparing lenders later on.
Firstly, let’s tackle the main two types of online loans; unsecured loans and secured loans.
Types of cash loans
- Unsecured loans: An unsecured loan is typically a small loan, that is not “secured” by equity. Unsecured cash loans are less risky for the borrower, as there is no chance of repossession. However, as the lender assumes more risk with this type of loan, they tend to charge higher interest rates.
- Secured loans: Secured loans are cash 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. If you are consistently unable to make repayments, 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 for personal finance, 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 amount to tie over your monthly expenses, then unsecured 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 loan may be the better fit.
To find the right finance option, you need to take the reason for your loan into consideration.
How to apply for personal finance?
You may be thinking “This sounds good to me, but surely applying for a loan is stressful and complicated.” Well, before the birth of the internet, you would be required to travel to the bank and wait in endless queues to apply for a cash loan. However, the internet has gifted the world of finance with a platform to make borrowing easy. There is a myriad of quick cash 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 that, 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 from the comfort of 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:
- Compare credit cards
- Access their online application and read through it, check that you meet all the minimum requirements
- Fill in the application, making sure all the information is correct, then hit send!
With the power of the internet, financial applications are accessible to anyone, no matter where you are or what you’re doing.
Looking at the scales: cash loans and credit cards
So, a quick cash loan or a credit card? Should you charge your latest expenses to a credit card, or take out personal finance? We’ll try to help you answer this question. 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 main advantage that stands out for short term lenders are the 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 steller interest rates!)
Loans come with an end in sight! When you apply for personal finance, you set an amount of 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, short term 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 may be the ticket to saving and halting those impulsive buys when you can’t (really) afford them.
You can also use personal finance 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 finance
Of course, like everything in life, there are disadvantages to taking out quick cash loans to pay for expenses.
Cash loans are only for a finite amount of time. If you require an extra boost to your funds again, you must apply for another loan. Applying for several fast 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 making out short term finance is 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 finance is 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 an instant loan or a credit card for your financial needs.
Advantages of credit cards
Let’s take a look at credit cards. Credit cards are a viable option if you’re searching for a borrowing platform, however, are they better value compared to online cash loan? 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.
A massive advantage of having a credit card 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 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 to owning a credit card, there are certainly some equally big disadvantages.
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 cash 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 taking out personal finance or credit cards.
- Why are you applying to borrow money?If you are looking to make a large purchase (up to $5,000), then perhaps a same day loan is more appealing. With lower interest rates, these loans will cost less in the long run.
If you’re simply looking to pay for a few odd expenses with a line of credit, then a credit card might be your best option. And don’t forget the rewards!
- How do you manage your repayments?As we have mentioned before, cash 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.
- Are you consolidating your debt?If the answer is yes, then consider personal finance. Some lenders allow you to transfer credit card debt over to a cash 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 quick cash 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 cash 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, and have been meeting other repayments you may have, then you might be eligible for bad credit finance!
The Verdict
When it comes to making tough financial decisions, it always comes down to your individual circumstance. However, hopefully, this breakdown of cash loans and credit cards has given you a good idea about what you need.
Remember before making your decision between 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.
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