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Compare Unsecured Loans And Credit Cards

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Out of the many financing options available on the market, which one is the most suitable for you? Unsecured loans may seem like the obvious, go-to answer, but there are other options to take into consideration as well; not least of all, credit cards. Are they similar in any way? Or do the differences prevail?

What Are Unsecured Loans?

Unsecured loans are one of the most popular financing options available. They’re flexible and varied, and they’re suitable for many different borrower types and needs. Most people will opt for one when they’re in need of cash. Their unsecured character means that you don’t need to offer collateral in order to be eligible for it, but just like it has advantages, there are also disadvantages to consider.

What Are Their Advantages?

You can get them with bad credit

Credit score is one of the major aspects of that determine whether or not you are eligible for a loan. You may be familiar with the limitations of this kind of situation: you can get lower loan amounts, higher interest, or even be rejected altogether. With unsecured loans, you’re not going to run into those issues, because there are loans for bad credit that you may find suitable.

You repay in affordable instalments

One of the best things about unsecured loans is the ability to repay in instalments. Unlike, say, a payday loan that you are supposed to repay on your next payday, all in one go, unsecured loans can be paid in monthly or weekly instalments that can fit right into your budget. Credit cards, on the other hand, need the balance paid at the end of every month, which might make them a less convenient option.

What Are Their Disadvantages?

The interest rate is high

The thing with unsecured loans is that while yes, they have the advantage of not requiring security, they also come with the disadvantage of a high interest rate. You see, the lender has to secure themselves in some way, especially if your credit isn’t stellar. In that case, the interest rate will act as a form of security helping the lender recoup their money.

Loan providers can be sketchy

The other thing to look out for is that not all lenders are created equal, and some of them are less than trustworthy. If you don’t look for reviews and company history, you may just wind up contracted to a loan shark or a dishonest company that has hidden clauses and charges in their contract. The best loans are offered by reliable companies.

What Are Credit Cards?

Credit cards also offer unsecured credit, because you don’t need collateral to get a credit card, either. The difference is that you typically just put your expenses on the card and then repay the balance at the end of the month. If you fail to do so, then you will pay interest for your outstanding balance.

What Are Their Advantages?

You can circumvent interest charges if you pay off your balance

The good thing about credit cards is that you can technically get away with borrowing money for a short while, for free, as long as you are able to pay off the balance when it’s due. You see, this option allows you to just put all your expenses on the card during the month and then pay it off once you get paid, for example. Beware of the high interest rate applied if you can’t pay on time, however.

You get them from a bank

One of the reliable advantages of credit cards is that they are issued by banks, and you can trust that they are not loan sharks or some dodgy online company. In addition, it may also work to your advantage if you have an established relationship with the bank and are a long-time customer.

What Are Their Disadvantages?

You need decent credit

Of course, the biggest drawback is that you need a decent credit score, otherwise the bank won’t take you seriously. That knocks you out of the running if you’ve been struggling with your score, lately. It can also mean putting in a lot of work towards improving the score, so it’s not an instant solution.

You’re limited in terms of amounts

Typically, a credit card is a great solution if you need help with everyday expenses, but a larger, one-off expense or purchase may not be suited to this form of financing. You would need excellent credit for a generous credit limit.

It’s up to you to decide which option is best for you – is it an unsecured loan or a credit card?

Charlotte Ross

Charlotte Ross

Charlotte Ross is one of the leading contributors of content and all things finance at Fablious. Whether she’s writing articles, answering queries or providing her expertise for others to benefit from, Charlotte is always putting her knowledge and experience to good use. You can find her on Twitter @Charlotte_K_R

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