Credit Cards vs Secured Loans – the Pros and Cons  

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If you’re in need of cash for a project such as a wedding or home improvements, you might be wondering how best to borrow the money. Should you take out a secured loan or simply borrow the money on a credit card?


Looking to borrow some money but not sure what’s the best way to go about it? We weigh up the pros and cons of borrowing cash on a credit card or via a secured loan.

If you’re in need of cash for a project such as a wedding or home improvements, you might be wondering how best to borrow the money. Should you take out a secured loan or simply borrow the money on a credit card?

If you are only intending to borrow a small amount – such as up to £3,000 – a credit card can be a more cost effective way in which to do so. In fact, often lenders charge customers who wish to borrow smaller amounts a higher interest rate than they would on sums above £3,000. In general, the larger the amount you wish to borrow via a loan, the lower the interest rate. There are also other benefits to using credit cards.

Pros and cons of credit card borrowing:

Your purchases are protected

If you are using a credit card to buy items for a new home, for example, your purchases are protected under the Consumer Credit Act. As such, if the retailer goes bust and is unable to supply the items, you can get your money back from your credit card company. However, you won’t get the same protection with a secured loan.

Introductory interest-free periods

If you look for the best deals available, you might be able to take advantage of a 12 to 16-month interest-free introductory period and save money on your borrowing, whereas you don’t normally get this benefit when you borrow money via a secured loan.

Credit card repayments are flexible

As long as you stay within the minimum repayments required, you can vary how much you repay each month depending on what your other outgoings and costs are. Plus, you can repay the entire borrowing back in one go if you have the funds available without paying a penalty. However, this flexibility can also be a downside as it may take you longer to repay the loan.

Self-discipline required

Using a credit card to borrow money requires self-discipline. You’ll need to make sure that you repay the money you owe during the introductory period to avoid accruing expensive interest payments. Credit card interest rates can be between 15% and 25%. Depending on how much money you borrow and your circumstances, 12 to 16-months might not be long enough to pay it all back.

Will you get the borrowing limit you need?

The difficulty is that when applying for your credit card, you won’t know if the lender will agree to give you the borrowing limit you require until your application is successful. You might need £3,000, for example, but they might only offer you a credit limit of £1,000 or £2,000.

Credit searches leave a trace

Each time you apply for credit it will leave a financial footprint on your credit score. So if you are unsuccessful in your first application, applying for another credit card or deciding to opt for a personal loan instead will leave another mark on your credit score and unfortunately make it less likely that you have more success the second time.

Access to credit cards and loans for over-55s can come with challenges. Speak to our mortgage and loan experts Fluent Money who are on hand to give you the best advice. Book a free call now.

Pros and cons of secured loans

Better for larger amounts

If you are planning to borrow a substantial sum for home improvements, for example, a secured loan may be a better option than a credit card. The interest rate will be lower than with a credit card and you can borrow larger amounts - £5,000 to £100,000 depending on your circumstances - and repay them over a longer period, such as five to 25 years.

You can choose the exact sum and repayment period

Secured loans allow you to borrow a fixed sum and often at a better interest rate than you might get with a credit card. What’s more, you can choose your repayment period, spreading the cost and ensuring that the repayments are affordable. Plus with some loans you can also take a repayment holiday if you need to.

You have to be a home owner

However, you usually have to own your own home to apply for a secured loan because the borrowing needs to be secured on an asset, such as a property. However, sometimes a car or other assets such as jewellery can be used as the collateral.

Easier if you have a poor credit history

If you have a less than ideal credit history you might actually find it easier to get a secured loan than other types of borrowing because it is a less risky option for the lender.

Your home could be repossessed if you don’t keep up the repayments

On the downside, if you default on a secured loan your home could be at risk as your lender could repossess it to get their money.

Generally, if you wish to borrow a sum of £3,000 or less a credit card may be a more cost effective solution for you. However, if you are planning to borrow a larger sum, a secured or unsecured loan may be the better option.

Whichever you choose, it’s important to make sure that you maintain a good credit score and make your repayments on time to avoid any issues in the future.

Always think carefully before taking out credit or securing borrowing on your home.

Written by Piper Terrett, Fluent Money Group – July 2021

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