When to use a Personal Loan versus a Credit Card for Holiday Shopping

If you?re planning to spend big on something special, it might make more sense to get a personal loan for holiday shopping.

In the past, I?ve written about how I use personal loans to smooth my finances. Personal loans, when used judiciously, can be a practical way to keep your monthly cash flow manageable, while still allowing you to make some bigger purchases.

And, if you know that you?ll carry a balance on that credit card for holiday shopping, a personal loan might actually be a better choice, depending on the terms you can get.

credit card for holiday shopping

Personal Loan vs. Credit Card for Holiday Shopping

It?s no secret that I like using credit cards for a lot of my shopping. I use credit cards for everyday purchases, as well as for special (and planned) purchases. However, I know it?s important to pay off the balance at the end of the month so that I don?t rack up the interest charges.

It?s true that sometimes I carry a balance on my credit card (although I try to avoid it for more than a couple of months). However, if I know that a major expenditure is coming, or if something surprises me (like my second cross-country move in the space of a year), I prefer to use a personal loan. Here?s why:

  • You can usually borrower a larger amount. Personal loans from lenders like Discover allow you to get up to $30,000. Most of us don?t have credit cards with that kind of limit on them.
  • Fixed rate, so you don?t have to worry about seeing the rate fluctuate. Also, in many cases, a personal loan comes with a lower interest rate than a credit card. Discover Personal Loans start with an interest rate as low as 6.99%. The lowest rate I have on a credit card is still 7.99%, and many credit cards for those with good credit still charge 9.99% or 11.99%.
  • Quick response. Thanks to the magic of the Internet and direct deposit, you can frequently get your money from a personal loan within a business day or two
  • Look for a lender that doesn?t charge origination fees or closing costs. Discover Personal Loans won?t charge these fees.

If you know that you will be getting a major gift for a loved one, such as an engagement ring, a special vacation, or something else, it can make sense to get a personal loan for holiday shopping. When you know you need a little more time to pay off the loan, saving on interest can be a big deal, and knowing that you aren?t depleting your resources to buy holiday presents can purchase peace of mind.

As someone who has a variable income, I know it?s sometimes worth it to just pay the ?convenience fee? of interest associated with a low-cost personal loan than to draw down the emergency fund or save up for months. (Yes, I just said that sometimes I don?t delay gratification.) I?d rather use a manageable payment with a low interest rate for something than draw down the fund I have in reserve, just in case something goes horribly wrong. This is true for my holiday spending as well as for my regular spending.

While the credit card rewards are nice, they don?t do any good if your holiday shopping results in high interest rates that negate the value of your rewards. Be realistic about your planning, holiday purchases, and what?s next. Then consider getting a personal loan versus using your credit card for holiday shopping.

Disclosure: This blog post was written as part of a sponsored program for Discover Financial Services. All views expressed are entirely my own, and were not influenced or directed by Discover Financial Services.

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