Is a credit card a good alternative to a loan?

19 January2011

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There are different types of credit available for different purposes. Credit cards are typically most suitable for short-term borrowing, but in recent years a lot of deals have emerged that offer a real alternative to longer-term forms of credit such as a personal loan.

However, there are key differences between a credit card and a loan that will affect which is more suited to your needs. A credit card is more flexible in terms of repayments, but this can lead to the temptation to repay the debt slowly (which could cost you more in the long run).

Furthermore, personal loans typically incur less interest than credit cards over longer periods of time - so if you need a longer repayment period, a personal loan may be your best option.

But if you can afford to repay what you want to borrow within a shorter period on a credit card, it could work out cheaper than a loan.

Here`s our guide to the types of credit card that can be used for longer-term borrowing.

0% interest credit card

A 0% interest credit card charges no interest on purchases made using the card for a limited period (often between 12 and 16 months). In this time, you`ll be able to spend on your credit card without interest building up, even if you`re only making the minimum monthly repayment.

This gives you the freedom to repay what you`ve borrowed almost as you please: you could repay a fixed amount every month, or you could delay repaying the full balance until towards the end of your interest-free period (although you will still be required to make minimum monthly payments along the way).

0% balance transfer credit card

A 0% balance transfer credit card enables you to repay existing credit card debts without paying interest for a limited time - potentially making it a good alternative to a debt consolidation loan.

Again, this enables you to repay your debt as fast or as slowly as you like (aside from the minimum repayment), although it`s a good idea to make sure you repay everything before the 0% interest period is over. Remember though: these cards usually charge a balance transfer fee - the cost of which needs to be considered in comparison to the potential interest savings.

Low-interest credit card

A low-interest credit card charges interest at a much lower rate than typical credit cards - and the rates are often lower than rates on personal loans.

A low-interest credit card can be a genuinely useful alternative to a long-term personal loan, because there is usually no time limit on the low rate. As we mentioned earlier, you`ll also have more flexible repayment terms on a credit card, which could be useful if any unexpected costs come up in the future - but remember that if minimum repayments are not made, higher interest or additional charges might be applied.

Compare different types of credit card with the free comparison table below.

Review our latest credit card best-buys

Product	Transfer rate & period	New Purchases rate & period	Representative APR
Tesco Bank Clubcard Credit Card for purchases	0% 9 mths 2.9% Fee	0% 16 mths	16.9% (variable)
	Representative example: With this credit card the representative APR is 16.9% (variable) based on an interest rate of 16.9% (variable), transfer fees of 2.9% and a credit limit of £1200.
M&S Credit Card	0% 12 mths 2.9% Fee	0% 15 mths	16.9% (variable)
	Representative example: With this credit card the representative APR is 16.9% (variable) based on an interest rate of 16.9% (variable), transfer fees of 2.9% and a credit limit of £1200.
Halifax Online All In One	0% 15 mths 3% Fee	0% 15 mths	17.9% (variable)
	Representative example: With this credit card the representative APR is 17.9% (variable) based on an interest rate of 17.95% (variable), transfer fees of 3% and a credit limit of £1200.
Royal Bank of Scotland YourPoints World MasterCard	0% 9 mths 1.5% Fee	0% 15 mths	17.9% (variable)
	Representative example: With this credit card the representative APR is 17.9% (variable) based on an interest rate of 17.95% (variable), transfer fees of 1.5% and a credit limit of £1200.
NatWest YourPoints World MasterCard	0% 9 mths 1.5% Fee	0% 15 mths	17.9% (variable)
	Representative example: With this credit card the representative APR is 17.9% (variable) based on an interest rate of 17.95% (variable), transfer fees of 1.5% and a credit limit of £1200.
Barclaycard Platinum with Purchase	0% 14 mths 2.9% Fee	0% 14 mths	18.9% (variable)
	Representative example: With this credit card the representative APR is 18.9% (variable) based on an interest rate of 18.9% (variable), transfer fees of 2.9% and a credit limit of £1200.
Bank of Scotland Platinum Purchase Card	0% 13 mths 3% Fee	0% 13 mths	17.9% (variable)
	Representative example: With this credit card the representative APR is 17.9% (variable) based on an interest rate of 17.95% (variable), transfer fees of 3% and a credit limit of £1200.
Lloyds TSB Platinum Purchase Card	0% 13 mths 3% Fee	0% 13 mths	17.9% (variable)
	Representative example: With this credit card the representative APR is 17.9% (variable) based on an interest rate of 17.95% (variable), transfer fees of 3% and a credit limit of £1200.
American Express Platinum Cashback Purchase Credit Card	- - -	0% 13 mths	18.7% (variable)
	Representative example: With this credit card the representative APR is 18.7% (variable) based on an interest rate of 14% (variable), annual fees of £25 and a credit limit of £1200.
We provide a representative range of products on competitive terms and do not act exclusively for any credit provider. Credit limits may vary depending on your circumstances.

Tags: credit cards, alternative, loan, alternative to loan, debt consolidation, credit card for loan, use credit card for loan