When making a big purchase, credit cards can sometimes win out over personal loans despite having typically higher interest rates. Depending on your situation, the benefits of rewards and special offers can help you save money, get a return on your investment, and even help you consolidate debt more effectively.
You're Looking For Rewards
If you're comfortable with your ability to pay off a credit card balance every month, these can work better than loans by providing rewards. The type of rewards you're after will affect which kind of card to use. For example, cards that offer straight cash back can effectively give you a discount on the purchase you're making. Alternatively, some cards can offer travel rewards or give points toward gift cards or services.
Reward cards are usually best used over time for smaller purchases rather than large single-use expenses, but because of the utility some credit cards offer, using them to get something in return can end up working better than a personal loan if you're able to pay it off quick enough to offset the difference in interest. This can be doubly helpful if you don't qualify for a good rate on a personal loan but already have a credit card.
You Get A Special Offer
Special offers are great for things like large expenses or loan consolidation because they offer a set period of time with no interest at all, beating out even low-interest personal loans. These offers will sometimes come with a new card if you qualify for it, but they can also come from existing cards, as well.
These offers can help you buy a new appliance or make a home renovation, but you can also transfer debt to a card with a special offer from other cards, and even from personal loans. For example, if you get an offer for 0 interest for eighteen months, you can transfer debt from another card or account to the card with this offer to effectively shave off a year and a half of interest payments. If you're confident you can pay everything off in this time frame, the offer ends up being more beneficial than a personal loan.
You Can Pay It Off Quickly
A credit card can be useful for a big purchase if you can't quite make a purchase in full but don't need the length of time a personal loan provides. Credit card debt, which typically runs with high interest compared to installment debt like car loans and mortgages, is best paid off as quickly as possible, so if you have the ability to do this, credit cards are a good option.
The reason for this is that installment debt is comparatively low priority; because of their lower interest rates, you get less utility from paying them off early. With credit cards, however, you benefit much more by paying them off faster. Combine this with rewards and offers and you can get more utility by using a credit card for purchases that may take a few months at most to pay off rather than taking out a loan with lower monthly payments but a longer term.
