Short-Term Loans Versus Credit Cards: Which Is Better?

If you find yourself faced with immediate financial needs, there are two common options many people choose. Some may turn to short term loans for help whilst others may consider a credit card, but is one choice better than the other?

To help, below we’ll compare these options and explore their benefits as well as the risks. As there are many different types of credit available, choosing the right one for you may differ from other people and will depend on the financial situation you are in. Below we’ll focus on short-term unexpected expenses. What’s important is that you make the best choice for your budget and that you can repay the borrowing as quickly as possible.

Why Choose Short-Term Loans?

Short-term loans can give you the cash you need quickly and provide flexible repayments over a few months. For urgent cash flow issues and unexpected expenses, they can be ideal and are easy to apply for online, with various different direct lenders and credit brokers able to help.

Unlike personal loans that tend to be for amounts higher than £1,000 and require a 12 month repayment term as a minimum, short term loans are usually for amounts lower than £1,500 and typically provide 3 to 6 months repayments. The approval process is generally quick, sometimes within 24 hours, and lenders can be more accepting of those with poor credit histories, as long as repayments can be sustained.Top of Form

Why Choose Credit Cards?

A credit card allows borrowers to apply for a credit limit which can then be used to make payments, as well as make cash withdrawals. The limit you can receive will depend on many factors such as your credit rating and how long you have been a cardholder for. For example, you may be able to apply for a credit limit of up to £1,000 on a basic card, but other types of credit cards can have higher limits than this. This will depend on the lender and how well your credit has been maintained, as well as if you are a new customer.

For short-term expenses, they provide a quick and convenient way to pay for them within the credit limit. All you then have to do is maintain at least the minimum payment each month to pay the balance off. The smaller the repayments you make, the longer it will take to repay.Top of Form

Comparing Credit Cards and Short Term Loans

Both options can help you if they are used responsibly and you can afford to sustain the repayments. The key difference is in cost and flexibility. Short term loans often have higher interest rates than personal loans but might offer lower rates compared to a credit card. As you are borrowing within a credit limit, this means you can carry on using the credit card if there is available credit. It means you can pay off some of the balance and use it again if needed. However, this temptation means you could take much longer to repay the balance in full.

Short-term loans usually require fixed payments over a set period, such as 3 months, whereas credit cards only require a minimum repayment each month which although can be much smaller, means you may have the debt for longer than planned. You can make higher repayments to pay off the balance quicker and set up payment plans on some cards, but this isn’t a requirement and is up to you.

Which Should I Choose?