It’s probably just a strange quirk of human nature, but many people would prefer to use a credit card for large expenses than take out a personal loan. It may be that, because you’re not using all of your credit at once, you feel like you’re in control. Philosophical and fiscal musings aside, however, when it comes to larger purchases, a personal loan is almost always better. These sorts of products can also work out really well for you in other ways, too, especially if you take the time to compare personal loans before applying for your ideal one. Here are just five of the ways in which a personal loan can save you money, both in the here and now and in the long run. A personal loan can help you to consolidate your credit card debts If your credit card bills are becoming problematic, or if you simply want to reduce your outgoings, then a personal loan is a good idea. Credit card balances attract much more interest than loans do, so by transferring your debt into a loan, you will be able to pay less interest. Paying less interest in turn enables you to “attack” the principal amount much faster. This solution may work really well for you if you’ve been stuck on the minimum payment treadmill for a while. Most loans have interest rates of around 10 per cent, with the best personal loan rate being around five per cent. If you’ve managed your credit card well, you should be able to qualify for these lower rates. A loan could help you to make a big one–time purchase This purchase could be dental implants, a garden room, a vocational course that could help your career prospects or even the holiday of a lifetime. Instead of just whipping out your credit card and maxing it out, hold fire and look for a good loan instead. Remember those tasty interest rates? If you can find a deal that lets you make overpayments or early repayment without hitting you with huge fees, then that’s even better. While just putting your dental work on your credit card is quick and easy, if it means you’re approaching your limit, you could end up damaging your credit rating. Your debt–to–limit ratio is a good indicator of your financial health and if you look like you’re too reliant on your credit card, you could lose points. This may make it harder in the future to get credit at comfortable rates. More about losing interest (rates) A personal loan can often be more flexible than many other lending solutions. You could hold the loan for anything from a matter of months to five years or more. As long as you pay off the loan within the agreed term, you’ll be helping your credit rating and paying less interest than you would with a credit card. In addition to this, one measure of how well you handle personal finance is how long you have debts for. If you’ve agreed on four years and you take four years to repay the loan, you’re on target and all’s good. If you take four years to reduce your credit card balance to zero, or close to zero, it’s a different matter. With a loan you have a structured plan and timeline to pay off the debt. It’s also harder to extend a loan, whereas with a credit card you can always slip in another cheeky purchase once you’ve made some decent inroads into the balance. You may feel like you deserve a treat because you’ve paid more than the minimum amount for a few months now and no-one will stop you. Once you’ve paid off each loan instalment, however, then it’s done and you can’t dip into the loan again. A personal loan really can improve your credit history and score If you’re at or near your credit card limit on a regular basis then lenders will see you as a slightly higher risk. Sailing too close to the wind too often doesn’t look good and can result in unfavourable interest rates, which may cost you dearly. You could put that big purchase on your card and pay it off in good time without damaging your reputation too much but remember the difference in interest rates between cards and loans. In addition to this, a personal loan makes for better credit utilisation. This is especially so if you transfer a credit card balance onto a loan, because it improves your debt–to–limit ratio on that card. You’re also demonstrating that you want a clear timeline for paying that money back. It’s also really good to have several forms of debt on your credit listing because it shows that you can deal with more than just one type of account and spin more than just one plate. Personal loans don’t tend to feature surprise fees Another big advantage of taking out a loan is that by using a personal loan comparison tool you can pin down the exact details of the products you’re looking at. You can also look at the comparison rates, which gives you a much better picture of your eventual costs as it includes the fees and charges as well as the interest rate. If you know what your total eventual costs will be then you won’t be blindsided by any sudden fees. You should also find out how much you may be charged for early repayment of the loan. In general, early repayment will save you money, as you “escape” the interest that would have been generated; you just have to do the maths to make sure the numbers are tipped in your favour. Compare personal loans from Australia’s major banks, credit unions and other lenders here. The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.