Credit card interest tends to be higher than the rates you may be able to qualify for on a personal loan for a major purchase. A few percentage points may not seem like a big deal on paper, but over time, the dollar difference adds up faster than you’d think.
I’m sure you’ve noticed that paying your minimum payment on your credit card bill doesn’t seem to lower the balance very much from month to month. That’s because credit card billing is intentionally set up to keep you paying interest each month and very little towards the principal. A personal loan is a term loan. Your payments are the same each month and you know exactly when it will be paid in full. There’s no temptation to pay just enough to get by until next month.
You Shop More Than You Need With The Credit Card
Finally, credit cards make impulse buying much easier than it should be. You are thinking to buy a new laptop or desktop pc and you see in the store – it’s shiny and new and the description makes all sorts of promises. The plastic practically leaps out of your wallet or purse, begging to be used. How often have you been excited about a major purchase only to realize a few days later that you overlooked something very important to you in the excitement of the moment? That you probably didn’t need the “extended warranty” or should have negotiated better delivery options? Plus, it never hurts to let the salesperson see that you’re a methodical shopper, not likely to pull the trigger five minutes into your first visit.
Then again, getting a personal loan for a major purchase isn’t the time-consuming, laborious process it was a generation ago. You can log in from any connected device and in a matter of minutes submit your information.
So you’re at the electronics store, and there’s the amazing new 240” HD Quantum Plasma something-or-other TV and home entertainment system you’ve been lusting after ever since you first heard they were coming out. Or maybe your wife or girlfriend wants you to buy a brand new washer and dryer. The salesperson asks if you have any questions, then casually mentions that they have “interest-free” financing or that you get special terms if you sign up for one of their store credit cards today. Awesome, right?!
Well, maybe. Sometimes major chain stores offer promotional financing similar to what automobile dealerships do periodically. It’s possible that if you look over the details, you’ll discover it’s a pretty good way to get yourself that TV or entertainment system and finance it for practically nothing. The key is to really look at those details because other times you’ll find that “zero interest” only applies to the first few months, after which all of that interest is suddenly added back in and you’re actually paying a rate closer to your age than your shoe size. And most credit cards from chain stores are just that – credit cards. You may save a few points here or there when you use them at that store, but otherwise, they have the same advantages and disadvantages as any other card.