The Update

Should I Use an Unsecured Loan or a Credit Card for Large Purchases?

Let’s take a look at the pros and cons of each choice and how to decide which option suits you best.

All About Unsecured Loans

An unsecured loan, often referred to as a personal loan, is a lump sum of money borrowed from a financial institution or private lender that’s repaid over a fixed time period with interest. These loans don’t require collateral. This makes them easier to qualify for than most large loans, but interest rates can be higher. However, they do tend to be lower than interest rates on credit cards.

What are the Advantages of Using an Unsecured Loan?

Using an unsecured loan for a large purchase has several advantages, including:

• Fixed monthly payments throughout the loan term.
• Lower interest rates than credit cards.
• Higher borrowing limits than credit cards.
• No impact on credit utilization.

What are the Disadvantages of an Unsecured Loan?

• Origination fees, which increase the cost of borrowing.
• Fixed repayment terms.
• Lengthier approval time.

All About Credit Cards

A credit card is a revolving line of credit that allows you to borrow up to a set limit amount, repay what you borrow and use it again as needed. Unlike unsecured loans, credit cards offer more flexibility, but often have higher interest rates. The spending limit and interest rate will vary according to the cardholder’s credit health.

What are the Advantages of Using a Credit Card?

• Instant access to funds.
• 0% intro APR offers on some cards, which can last up to 21 months or more.
• Rewards and cashbacks.
• Flexible repayment, as long as you meet the minimum monthly payment.

What are the Disadvantages of Using a Credit Card?

• High interest rates. If you carry a balance past the introductory period, interest rates can be as high as 30%, significantly increasing the cost of borrowing.
• Risk of overspending. Because credit cards are revolving credit, it’s easy to spend beyond your means, leading to long-term debt.
• Credit score impact. Carrying a high balance can increase your credit utilization ratio, potentially lowering your credit score and making it challenging to qualify for large loans, jobs and more.

When to Choose an Unsecured Loan

An unsecured loan can be a better option in the following circumstances:

• You need to finance a large purchase that requires a lump sum.
• You can only afford to borrow money with a lower interest rate.
• You prefer a structured repayment plan with fixed monthly payments.
• You want to avoid increasing your credit utilization ratio.

An unsecured loan can be your preferred option for a home renovation, large medical expenses, debt consolidation and more.

When to Choose a Credit Card

A credit card can be a better option in the following circumstances:

• You want to take advantage of a 0% APR offer and can pay off the balance before interest kicks in.
• You want to earn rewards on your spending.
• You need quick access to the funds.
• You’re making a smaller purchase that you can easily pay off in a short period of time.

A credit card can be the best way to fund an emergency expense, a smaller home improvement project or a mid-size purchase, like a new home appliance.

Unsecured loans and credit cards both offer advantages, but they have drawbacks as well. Use this guide to make an informed choice about the method of payment for a large purchase of any kind.

RGCU Credit Cards or Loans

If you're planning a big purchase or just want more value from your everyday spending, RGCU has you covered. Our Visa Rewards Credit Card lets you earn points on every purchase—from groceries and gas to entertainment and utilities. Plus, unlike many other rewards programs, redeeming your points is simple and straightforward.

Looking for a flexible way to finance a larger expense? Consider an RGCU Personal Loan. With no collateral required and fixed, predictable payments, it's a smart option for covering big costs without the long-term commitment of a credit card balance.

Whether you prefer the ongoing benefits of a rewards card or the structure of a personal loan, RGCU can help you choose the option that fits your financial goals.