Credit Card vs. Line of Credit vs. Personal Loan vs. Buy Now, Pay Later

Sometimes we need a little bit of help to pay for the price of paradise. Whether it’s for a big event like a wedding or a baby luau or an unexpected expense like a costly car repair, borrowing money is a common way to get some financial help.

Luckily, there are options available for how you choose to borrow money. The most common choices include credit cards, personal lines of credit, and personal loans. Each has its pros and cons depending on your financial habits.

The most common way to borrow money is from a credit card. A credit card is used as a substitute for cash and gives you a revolving line of credit up to a credit limit. Credit cards also give you a grace period of at least 21 days to pay off your balance. If you don’t pay off your balance, you’re charged an interest rate based on your credit rating.

Pros:

• Convenience

• Earn rewards or cash back on purchases

• Grace period allows you to pay off your balance without paying interest

• Promotional rates with low APRs can be used for purchases and balance transfers

Cons:

• APRs are sometimes higher for credit cards than for personal lines of credit or personal loans

• Cash advances come with fees and possibly higher APRs

Typically best for:

• Everyday purchases and essentials

• Debt consolidation through balance transfers

• Earning points or cash back on purchases

One of the newest ways to borrow is called Buy Now, Pay Later (BNPL). You may have seen a BNPL option when making an online purchase or at the point-of-sale of specific retailers. BNPL provides short-term financing that allows you to pay for your merchandise in installments. Depending on the platform, these purchases are often interest-free, but you can be penalized with late payment fees. Platforms like Affirm, Afterpay, Klarna, and PayPal offer BNPL.

Pros:

• Convenience

• There may be flexibility in your payment schedule depending on the platform

• You get your product immediately (vs. layaway) and you can pay in predictable installments

Cons:

• Not all retailers accept Buy Now, Pay Later platforms

• You don’t earn rewards or cash back like with credit cards

• If you’re late with a payment you will be charged higher fees

Typically best for:

• Everyday purchases and essentials

• Furniture, electronics, or housewares

Like a credit card, a personal line of credit allows you to borrow as much money as you need with a revolving line of credit up to a credit line limit. Interest is only charged on the amount borrowed. But, unlike a credit card, there is no grace period before interest begins accruing, and there is a predetermined period where you can draw your money. Personal lines of credit also offer higher credit limits than credit cards.

Pros:

• Personal lines of credit typically offer lower APRs than credit cards

• Save on cash withdrawals by avoiding credit card cash withdrawal fees

• Access higher credit limits than typical credit cards

Cons:

• You’re charged interest every time you borrow with no grace period

• You won’t earn rewards or get cash back like with credit cards

• There may be additional fees depending on your lender

Typically best for:

• Debt consolidation at a lower APR

• Home improvement or remodeling projects

• A wedding, vacation, or special event

• Unexpected medical bills or expenses

Unlike a credit card or personal line of credit, a personal loan gives you a fixed lump sum of money that you pay off with a fixed interest rate for a set amount of time. A personal loan is best if you have a large purchase or expense that you can budget and pay off incrementally every month.

Pros:

• Receive one lump-sum

• A fixed interest rate and timeline makes payments predictable

• Consistent payment amount to pay off your balance

Cons:

• You pay interest on the total loan amount vs. borrowing just what you need

• Stricter edibility requirements

• You may have to pay loan fees

Typically best for:

• When you’re certain about the amount you need to borrow

• Home improvement or remodeling projects

• A wedding, vacation, or big event

• Debt consolidation at lower interest rates

Which one is the right one for you? That all depends on your situation and your financial habits. If you’d like to talk about your options or want to learn more, visit a Central Pacific Bank branch, and speak to one of our helpful loan officers.

Learn more about CPB Credit Cards

Learn more about CPB Personal Line of Credit

Learn more about CPB Personal Loans

Subject to credit approval