Balance transfer vs. personal financial loan: Which should I decide on?

Loans can be very helpful! When we get ourselves in financial needs we often turn to loans. However, it is so much easier to accumulate them than it is to pay them off. Are you overwhelmed with debts?

If you are in this condition you then know what I mean. It so distressing when you are not in a position to settle your debts. Usually, a late payment comes with additional charges that lenders add to the outstanding balance. This means your remaining amount increases. To worsen matters, the late payment charge may also attract interest.

And what happens next month if you fail to pay again? Well, dealing with a credit card can be so challenging. If you miss another payment, you will attract another penalty. Evidently, the situation is getting out of hand. Imagine if you miss up to five payments! In most cases, the late payment fee ranges between $30 and $35. If you multiply that amount by the number of months you have missed, it becomes so large. At this point, you are completely in financial distress. Yet there is something worse than that…

Your credit score will be significantly damaged if you miss your payments on loans. The money lending companies will report missed payments after a period of 60 days to the reference bureaus. This will significantly lower your score. In addition, your credit history will reflect a number of late payments. This means other lenders will not easily lend to you because you pose a high risk. If you are approved for a loan, it will be a very high-interest rate.

For this reason, it is absolutely necessary to look for ways of settling your debts before the situation get out hand. Today we are going to discuss a very interesting choice you are likely to face. Balance transfer versus personal financial loan: which should you decide on? Which one do you think is the right way to go? Let us discuss each one of them, including their advantages and disadvantages. Only then it will be easier to make a choice between the two. We begin…

Balance transfer

This is an arrangement that allows for the transfer of the remaining balance to another credit card. The new card carries a 0% interest for a period that may last from 9-21 months. There is often a fee charged to kick-start the transfer, usually between 3% and 5% of the outstanding balance transferred. However, you will be required to settle the outstanding balance within the introductory period. Failure to pay means you will have to pay interest on the outstanding amount at the APR.

In general, this is a very effective way of paying off the principal amount on your loan faster. It works quite well especially in a situation where your debts are mainly credit cards.

Why you need to consider balance transfer

This is a good option that will help you in the following two ways:

•    Allow you to consolidate debt. Loan consolidation is the most effective ways of dealing with high-interest debts such as credit cards. With credit transfer, you will pay 0% rate on the remaining balance within the introductory period.

•    You can access funds faster. Many people only think it is personal loans that offer quick access to finances. But even balance transfer can do the same, in fact quite faster. How? Well, the arrangement is not only restricted to your outstanding balance, but it is applicable to your credit limits also. This means if you have an available limit of $10,000, that amount is transferable to the deposit account and so you can withdraw.

Downsides of balance transfer

•    You will be charged a fee in order to start the transfer, ranging between 3% and 5%.

•   If you have too many debts you need to consolidate, the balance transfer will only be restricted to the card’s limit.

•   You are likely to remain with a substantial balance by the time the introductory period expires because the arrangement provided for a small payment on a monthly basis. In this case, you will have to settle the outstanding balance of the established APR.

The appropriate time to make use of balance transfer

A balance transfer is most appropriate in case your debt is not large. You need to be sure that you will settle the balance within the introductory period. Well, if it expires before you settle it, it is possible to kick-start another similar arrangement, though it may not be a wise decision. In addition, a balance transfer is also appropriate when you need new purchases.

A personal loan

As the name suggests, personal loans are taken for entirely personal use. The loans are often unsecured, meaning that borrowers do not have to attach collateral to the loan. Visit this site Loan Advisor to know more about different types of loans. Also, personal loan often matures for a period of between one to five years depending on the agreement. 

How can personal loan help you control your debts?

One main advantage of using personal loans at the expense of balance transfer is that you have sufficient time. Usually, if you fail to settle the debt within the introductory period, a balance transfer may turn out to be very expensive. In addition, the APR on credit card is often lower than what credit cards carry. As we have mentioned, the loan term can extend up to five. This means you are going to have a lot of time to repay the debt at relatively lower rates. The following are some other reasons why you should consider personal loans:

•    You can take a personal loan of a maximum of $100,000. Contrastingly, it is extremely difficult to get another credit card with a limit of at least $20,000

•    Taking a personal loan means committing yourself to the established payment schedule. On the other hand, a balance transfer only requires you to pay a limited amount on a monthly basis.

•    Personal loans can be put into other essential uses in addition to consolidating the credit loans. A balance transfer is specifically meant for refinancing credit cards.

•    Personal loans can help boost your credit score. A balance transfer doesn’t have this provision

If you are severely cash-strapped, you can access a loan comparison platform, such as HittaSMSLån.com to obtain access to dozens of online lenders. In some cases, you can get the money transferred directly into your account as fast as today.

Downsides of personal loans

•    You will always be required to pay interest rates

•    The origination fee can be quite high.

•    You need a good credit score to secure personal loans.

The appropriate time to use personal loans

A personal loan may be very appropriate in case you are not certain to repay the loan within the 0% introductory APR period.

A personal loan can also be a fantastic choice when you desire to increase your credit score. However, you will be required to make timely payments.

It can also be efficient in case you have other loans other than credit cards to consolidate. 

The bottom line

Balance transfer versus personal financial loan: Which should I decide on? Each of the two can be appropriate in different situations. Weigh your options carefully, looking at the benefits and limitations of each one of them before making a decision. And by the way, you blend the two and manage your debts effectively. How? We consider that next time.

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