$500 or more
Credit Choices: What's the best option for you?
When it comes to choosing how to finance a purchase—whether it’s car repairs, new furniture, or plane tickets home—you have several choices. And the choices you have are dependent on your credit score.
If your credit score isn’t high enough, a loan from a bank or credit union may not be an option. You could charge your purchase on a credit card, but when you add all the interest and fees, that can get very expensive. The best answer may well be an installment loan: You might pay more each month, but in the long run, your total interest will likely be less.
When comparing your options for credit, consider all the fees associated with each. For example, compare an installment loan versus a credit card.
An installment loan—even one with a sub-prime rate—can be a more responsible solution for emergency cash needs than a credit card. Installment loans have a fixed payment and terms, which provide you with a lower total cost. Installment loans also encourage financial discipline. Credit cards, on the other hand, might be easy to use, but they can lead you into a cycle of very high-interest debt.
The truth is, using interest and Annual Percentage Rate (APR) as the criteria for judging credit cards can be misleading. If you make minimum monthly payments on your credit card accounts, you could be paying far more than you realize. By contrast, the chart below shows how an installment loan used for debt management might have an interest rate as high as the highest credit card, but the monthly payment and total interest can be lower, and the debt can be paid off earlier. The key is to consider the term of the loan or credit, along with the interest and APR. Then you can calculate the true cost of a loan.
- What is your credit score? A higher score means you’re considered a better risk, so you’ll pay a lower interest rate and APR. A lower score means you’ll pay a higher interest rate.
- What is the long-term impact? Remember that the total cost of paying off a loan is the true measure of cost, not just interest rate or APR.
- Service members’ access to military payday loans and military payday advances is now restricted. Fortunately, affordable installment loans are available to the military. They can provide you the money you need without getting you into a spiral of debt. To find out more, we recommend www.pioneermilitarylending.com.
