Difference of a personal loan and maxing out a credit card

[UDT89]

OK,

assuming that i would never be late on payments for the credit card, whats the difference between maxing out my CC and taking out a personal loan for 5,000 with an interest rate of 14%?

Is the interest applied differently each month for a CC?

Im debating putting 5,000 into my 1967 camaro convertible. I wanna get it painted finally, and make some small repairs.

 

[StageLeft]

If you have the discipline I'd do the CC. I've maxed out CCs twice in the last few years to purchase large ticket items and paid them off not too long after. Unlike a fixed loan this gives me not only the ability to avoid more hassels and loan approvals, but also I can pay it off immediately, or if I want I can make a tiny payment just to stay up to date.

I can't imagine any differences in how the interest is applied wouild have a truly meaningful influence on anything, assuming your CC and personal loan are at the same rates.

 

[UDT89]

so if i maxed out a CC for 5k, and took a loan out for 5k....and the interest was the same and the monthly payment was $150/month for 60 months on the loan......


that same payment plan would pay off the CC in 60 months?

 

[acemcmac]

and if there happens to be a "rainy day" between now and getting this paid off... yove blown how much of your maximum potential creditline?

 

[UDT89]

so getting a loan is the smarter choice?

 

[StageLeft]

Originally posted by: UDT89
so if i maxed out a CC for 5k, and took a loan out for 5k....and the interest was the same and the monthly payment was $150/month for 60 months on the loan......


that same payment plan would pay off the CC in 60 months?

Yep, not accounting for any minute differences in how they calc interest, but I wouldn't stress over those.

 

[CChaos]

Personally, I'd get the loan because I'd be too tempted to carry the balance longer if it was on a CC and I could just make a minimum payment. With a loan, I'd be forced to make the payment. I just prefer the fixed term of the loan vs. carrying the balance on a CC. As someone else pointed out, you'll also have that extra room on the CC should you need it. I actually took out a personal loan to pay off a CC a few years ago because the interest rate they were offering was much better than I could get on a CC.

 

[MercenaryForHire]

A maxed-out CC is "irresponsible spending."
A big personal loan is "building future credit potential."



- M4H

 

[Nanotech]

Originally posted by: UDT89
OK,

assuming that i would never be late on payments for the credit card, whats the difference between maxing out my CC and taking out a personal loan for 5,000 with an interest rate of 14%?

Is the interest applied differently each month for a CC?

Im debating putting 5,000 into my 1967 camaro convertible. I wanna get it painted finally, and make some small repairs.

The difference is the amount of interest you are going to pay. Regardless of whether or not you make payments on time for your CC unless you pay it off in full before the end of the first billing cycle you are going to begin paying interest. Thus, you will pay about $300 more for a $5000 purchase on a CC than on a $5000 personal loan. That is assuming the average 19.99% CC interest rate vs. the 14% loan rate.

$5000 * .1999 = $1000
$5000 * .14 = $700