When faced with unexpected car repair costs, many people turn to their credit cards as a quick solution. However, using a credit card for large expenses can have significant drawbacks.
A short-term loan might be a more financially sound option. Let’s break down why.
- Fixed Interest Rates
Short-term loans, like payday loans, typically have much higher interest rates compared to credit cards. However, with credit cards, even if you plan to pay off the balance quickly, interest charges can accumulate rapidly. Short-term loans offer fixed interest rates, providing more predictable repayment terms.
- Fixed Fees
Credit cards often come with annual fees, balance transfer fees, and other charges that can add up. Short-term loans usually have fewer or no additional fees.
- Fixed Payment Schedule
With a short-term loan, you know exactly how much you'll owe each month and when the loan will be repaid. This predictability can help you budget effectively.
- No Minimum Payments
Credit card minimum payments can be misleading. Focusing solely on minimum payments can lead to paying off the balance much slower and incurring more interest. A short-term loan forces a structured repayment plan.
- Credit Score
High credit card balances can negatively impact your debt-to-income ratio, which is a crucial factor in determining your credit score. A short-term loan with Lamina doesn’t affect your credit score at all.
- Dedicated Funds
A short-term loan is specifically for car repairs. This can help you avoid using the loan for other expenses, preventing unnecessary debt. Credit cards can be more tempting to use for impulse purchases.