High Interest Rip-Offs: Personal Loans Or Credit Cards?

13 May 2011.

You know, I’ve heard about personal loan offers and promotions but never looked into one. This week I wondered, what’s the difference between a personal loan, a cash loan and a plain ‘ole credit card (apart from the fact that you don’t want a cash advance at 18 per cent compounding interest on your Visa thank-you-very-much). And, when should I use a personal loan over a cash loan or credit?

Won’t they rip me off with high interest and charges all the same anyway?

Well, the first thing I found out is personal loans have lower interest rates than cash loans and credit cards (win!). But banks do expect you to have a superb credit rating to lend you the money (dang). Banks are less fussy about a bad credit rating if you’re applying for a credit card, but it doesn’t give you as many spending options.

On small amounts and if you need cash urgently, it shouldn’t be too hard to jig around your cash and expense on your credit card – but watch out. It turns out you spend 12 per cent more when you swipe.

Cash loans now are essentially payday loans now. The interest is exorbitant, but you don’t feel it as much over a 24 hour or 48 hour period which is basically what they’re for. If you need the money that badly, I say ask your boss to pay you a day early and offer him the $50 interest. It’ll cost you less and he’ll hardly shoot you down.

The other difference between a loan and credit is that personal loans are split into two categories: secured and unsecured. All it means is your lender will want to prop your borrowing against an asset, like a car or your house. In the case of a secured loan (if you qualify with a slick credit history!), you’re bound to benefit from low interest rates. Unsecured loans will charge slightly higher interest.

Borrowers beware: Pay your bills on time or face stiff late charges and penalties. Personal loans are more strict when it comes to repayments.What’s interesting is the fact that more Americans are taking out personal loans according to a report on Digital News as people look for low interest alternatives for borrowing. Tight credit and poor economic conditions has increased the demand for personal loans.

HSBC recently announced unsecured personal loan rates starting at 6.99 per cent. Not bad. Sun Trust did better with 3.99 per cent and Nationwide Bank came out with a 6.45 per cent rate. The loans are being used for refinancing vehicles for homeowners mainly.

… Continued on EconomyWatch.com: High Interest Rip-Offs: Personal Loans Or Credit Cards?