Personal loan or credit card: What’s your best money match for borrowing $10,000?

Personal loan or credit card: What’s your best money match for borrowing $10,000?

Personal loans and credit cards can be tempting as they allow you to fund your backyard makeover or purchase your sleek sedan NOW. But as you know there’s always a catch and with banking products it usually comes in the form of an interest rate that has the potential to burn a massive hole in your wallet.

To help you decide on your money match, we’ve crunched the numbers on three borrowing options – a personal loan, low rate credit card and 0% purchase rate credit card – to see which is cheaper if you borrowed $10,000 and made $313 monthly repayments over 3 years.

Personal loans

IMB Secured Personal Loan: 7.94% fixed interest rate

Interest paid over 3 years: $1,272

Setup costs: $175 (application fee)

Total repaid: $11,447

Who’s it good for? Borrowers who want to pay down the debt in the agreed timeframe and budget for repayments with a fixed rate.

But watch out for…early repayment penalties and termination fees on some personal loans.

Low rate credit cards

Community First McGrath Pink Visa: 4.74% intro rate for 9 months, then 8.99%
Interest paid over 3 years: $1,114
Setup costs: $120 (annual card fee over 3 years)
Total repaid: $11,234

Who’s it good for? People looking to pay as they go with repayment flexibility.

But watch out for…the temptation to spend more than you normally would and get into a higher level of debt.

0% purchase rate credit cards

NAB Low Rate Card: 0% purchase rate for 12 months, then 13.99%
Interest paid over 3 years: $904
Setup costs: $177 (annual card fee over 3 years)
Total repaid: $11,081

Who’s it good for? Diligent savers looking to pay as they please and enjoy an interest free period.

But watch out for… splashing out without the savings to pay the balance back.

Comparison results

Once the numbers were tallied, in our scenario the 0% purchase rate credit card was found to be the cheapest option costing $904 in interest, followed by the low rate credit card at $1,114. Whereas the personal loan option was the most expensive option at $1,272. That’s a difference of $368.

However, we should point out the interest rate isn’t the only consideration when selecting the right banking product for your needs, you also need to be very real about how disciplined you can be. Too often with credit cards its easy to spend more than you initially planned (or make extra purchases along the way), and then you fall into the trap of making lower repayments which can stretch out the time it takes to repay your debt.

By comparison, the fixed interest rate attached to the personal loan means you can budget for your repayments, as they will stay the same over the life of the loan and it could end up being a much cheaper option in the long run.

Personal loan or credit card: What’s your best money match for borrowing $10,000? was last modified: April 5, 2016 by Rebeccah Elley

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  1. From what I read here and I think I got most of it, it is more a case of your personal nature that should dictate which option to go for. If there is that huge difference between the personal loan scheme and a credit card scheme, why would anyone, and I mean anyone go for a personal loan But then I get it, it is more of a personal choice, rather than it being anything to do with the scheme itself. Say it like flavours, you just like one more at times and don’t mind paying extra for it. Thank you for the article Rebeccah. I hope I got it right.

    Reply
    1. Mozo

      Hi Andrew,

      Yes that’s right the decision between a personal loan and a credit card should be based on your spending personality, as well as the interest rate. For example, if you’re the type of person that tends to splash out then you should stay clear of the credit card option.

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