In this article, we will compare and contrast two different types of credit: personal loans and credit cards. We will look at the pros and cons of each type of financial service. This should help you determine which type of service you can benefit from at this time.
Personal Loans: Overview
- Personal loans offer a fixed amount of money as a one-time payment.
- The loan must be repaid in full, including any applicable interest and fees.
- The loan is repaid in several installments.
- A personal loan offers a longer repayment period and, typically, lower interest rates than a payday loan.
- Applying for a personal loan does not have an impact on your credit score.
- Most of the lenders we work with do not check your credit score.
- If they do check your credit score, it will likely be a soft credit inquiry, meaning that it has zero impact on your credit score and does not show up on your credit report.
Minimum Requirements to Apply for a Personal Loan
- 18 years of age or older
- Canadian citizen or permanent resident
- Permanent address
- Have a source of consistent income
- Have a Canadian bank account, which is valid and has been active for at least 90 days
Credit Cards: Overview
- Credit cards are a revolving type of credit, allowing you to borrow within a certain limit on a recurring basis.
- The so-called credit utilization ratio refers to the percentage of the available credit that you spend on a monthly basis.
- Maintaining a credit utilization ratio below 30% may help you build a better credit score.
- You must pay the credit card balance at the end of each month.
- If you don’t pay back the balance or only make the minimum payments each month, it may result in additional interest and fees as well as negatively impacting your credit score.
- A credit card company may perform a so-called soft credit inquiry before offering you a service and a so-called hard credit inquiry before approving your application.
- Unlike a soft credit check, a hard credit inquiry will impact your credit score and will show up on your credit report.
Typical Requirements to Obtain a Credit Card
- You must be at least 18 years old in Ontario, Quebec, Alberta, Manitoba, and P.E.I. and at least 19 years old in all other provinces and territories.
- You need to be a Canadian resident with a permanent address in Canada. Some cards may require you to be a Canadian citizen or a permanent resident.
- Usually, a good or, at minimum, fair credit score is required. Secured credit cards may be available for those who lack a solid credit history.
- Some cards may require a proof of a certain minimum income.
- Some cards also require proof of stable employment or a consistent income.
- Some cards may also require that you have a Canadian bank account.
- You will also need to provide government-issued I.D. when applying for a credit card.
- Some issuers will also ask for your Social Insurance Number (SIN) to verify your credit history.
- Cards that offer rewards or premium features may also require an excellent credit score or membership in a particular organization.
Pros of Personal Loans
- Personal loans may present an appealing alternative to those who lack access to more traditional financial services such as credit cards.
- You may apply and often obtain a personal loan, even with a lacking or poor credit history.
- A personal loan may help you cover immediate expenses and bridge a shortfall between paycheques.
- A personal loan typically offers a longer repayment period and lower interest rates than a payday loan, giving you more flexibility in repaying the loan.
Cons of Personal Loans
- If you’re unable to make your payments on time, you may be charged additional interest and fees.
- A personal loan is intended to provide an immediate financial solution rather than a long-term financial strategy.
Pros of Credit Cards
- You can build a better credit score by paying your credit card balance responsibly at the end of each month.
- Maintaining a low credit utilization ratio may also help improve your credit score.
- In turn, a good credit score can help you get approved for a rental or a mortgage or receive more favourable loan terms.
- Credit cards represent a flexible, revolving type of credit that allows you to cover everyday expenses.
Cons of Credit Cards
- A credit card may be harder to obtain for underserved or underbanked customers, particularly those who lack a good credit history.
- If you’re unable to make your payments on time, it will negatively impact your credit score.
- A high credit utilization ratio may also adversely impact your credit score.
- A low credit score, in turn, will impact your ability to apply for a rental or a mortgage or obtain favourable loan terms. If you wish to improve your credit score, sign up for Credit Verify! The registration process is quick and easy, and you will be able to track your credit health and detect errors on your credit report.
- You may be charged a wide variety of fees, such as a late payment fee, a balance transfer fee, interest charges, and so on.
Conclusion
In sum, whether you opt for a personal loan or a credit card will depend on your unique financial circumstances. Those who lack a credit history or have a low credit score may benefit from an online personal loan, while those who wish to build a better credit score may benefit from using credit cards responsibly. If you need to cover urgent expenses, you may apply for a personal loan online via OntarioCASH. We don’t check your credit score or credit report during our simple online application process. A low credit score is not an obstacle to applying with us!
