Clark & Washington

Loans vs. Credit Cards — What I Need to Know

There are pros and cons to both loans and credit cards. Most people already have one of the two or perhaps both but before you get any more, knowing their similarities and differences can help you decide on which one is best for you. When it comes down to it, it really depends on the specific situation.

Credit Cards

Credit cards are a very expensive way of financing. That is because their interest rates are usually in the double digits. You can avoid accruing interest by paying it off in full on each due date but that is not feasible for everyone. Either way, you have to make a minimum payment every month on the card. This amount is determined by the card issuer and you cannot change it unless you pay the balance down. Another thing about credit cards is that it is considered revolving debt. That means there is a limit on the amount you can spend on the card. That being said, you can only spend up to that amount. You can use the card more if you pay the balance down but still only to the limit. It is based on how much you spend and how much you pay back. Credit cards are usually unsecured, meaning you do not have collateral to back them up.


A loan can be secured or unsecured. If you have an unsecured loan, the interest rates are usually higher to compensate. One good thing about loans is that the interest rates are generally lower than credit cards. They may be even lower if you have good credit. However, it is not revolving debt. You are given a lump sum of cash and you agree to make payments back over a specific period of time until the loan is paid off completely, including interest. The payments are all equal amounts and they are determined in part by the loan provider but also by the term of the loan. Loan terms can be as long as 30 years with a mortgage or as short as 6 months with a short term loan.

How To Decide Between The Two

Loans are generally better for long term financing or larger amounts. This is a good idea if you cannot pay off the entire balance monthly so you aren’t hit with large amounts of interest. Credit cards are good if you want to have access to money for the long term. You will want to only use credit cards on purchases that you can pay off by the due date to avoid the high interest amounts. For more information, please contact Clark and Washington.

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