Both balance transfer credit cards and personal loans are a great way to pay off your debt. You can easily consolidate and pay for what you owe, and pay it off with (ideally) a lower interest rate moving forward. Finding the best balance transfer or personal loan term can simplify your finances and get you out of debt faster.
While both of these are great financial opportunities, there are pros and cons to both options. Take a look at these side by side comparisons.
A balance transfer credit card gives you an annual purchase rate (APR) of 0% on balance transfer you made during a certain period — usually within 12 to 20 months. Transferring your balance means you have the chance to pay for the debt without incurring interest.
Balance transfer credit cards must be used strategically as they often have higher interest rates when the introductory period ends. If you can’t pay for your credit card debt on time, you can end up with a higher-interest debt later on.
A personal loan is a great way to consolidate your debts. It lets you borrow a larger amount with longer repayment periods compared to balance transfer credit cards. They offer fixed interest rates with fixed monthly payments, and on a fixed timeline! As long as you’re a responsible payer, you won’t have surprises or surges in your finances.
This is a great choice if you’re trying to save money and pay off your debt at the same time, because the interest rate tends to be lower. Usually, it's hard to get approved for a personal loan. However, most banks have made their process easier and more accessible to Kiwis.
Still confused as to how they exactly differ from each other? From interest rates to repayment conditions, here’s a side by side comparison.
|Balance Transfer Credit Card||Personal Loans (For Debt Consolidation)|
|Works best for||Smaller debts to be paid in a short amount of time||Larger debts that you may not be able to pay in a short period|
|Amount you can borrow||$300 to $15,000+ depending on the bank||$1,000 to $100,000+ depending on the bank|
|Repayment conditions||Pay the full amount during the introductory period||Monthly repayments for the lifetime of the loan|
|Requirements for approval||Good credit score is required||Good credit score is preferred, but a bad credit score is fine too|
|Interest rates||0% APR during the introductory period||5.99% to 35% APR depending on the lender|
|Fees||Balance transfer fee of anywhere between 0-5% of the amount transferred||Origination fee between 0-8% of the amount borrowed|
While their purpose is the same, they work differently in consolidating your debts. To know which one works best for your financial situation, answer the following questions.
Depending on the debt you have, your debt consolidation may vary.
Since a personal loan lets you borrow a bigger amount, it's good for large debts such as mortgages, overdue lease payments, short term loans, as well as accumulated credit card debt. The lender can credit the money into your account directly. Or, you can let the lender pay the debt themselves, and simply pay them later on.
For credit card debt, a balance transfer credit card is a better option. However, if you already know that it's hard for you to commit to paying for another credit card, then it's best to stay away from plastic for now. Otherwise, you’ll have to pay with higher APR after the introductory period expires.
Whether applying for a new credit card or personal loan, it can affect your credit score negatively. Either way, you may also need at least an acceptable credit score to apply for one.
Applying for a balance transfer can lower your credit score at first, but it can easily bounce back as long you complete the repayments for your debt. Your credit utilisation rate can also increase once you finish paying off your debts. This makes it more ideal to increase your credit score.
Similarly, applying for a personal loan can also lower your credit score for a time. As you repay your loan, you can increase your credit score too. Unlike balance transfer credit cards, it may not increase your credit utilisation rate as this only applies to credit cards.
If you don’t find these two options fitting to your financial situation, check out this list.
On the other hand, if you find a balance transfer credit card or personal loan that fits your financial situation, make sure you have the best rates! Instead of helping you go debt-free, a bad deal may put you into more financial troubles.
Get the best rates among the top providers in New Zealand! Simply visit glimp and compare your best options today!
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