Loan vs. Credit Card: Which is Better if You Have Bad Credit or Fair Credit?

When you have bad credit, it may seem like your options for borrowing are limited. However, there are plenty of credit cards and loans available that consider many other factors in addition to credit scores.
The question is: which one is better? Should you get a credit card or a loan with bad credit?
Let’s look at the pros and cons of each one below.
Pros of Credit Cards for those with Bad or Fair Credit
Credit Utilization
The second most important credit score factor is credit utilization. This measures your total revolving credit (credit cards and lines) balances compared to your total credit limits across all sources of revolving credit.
Opening a credit card increases your total credit limit, lowering your utilization. A lower utilization helps boost your score.
Cashback Rewards
Credit cards let you earn free money in the form of cashback points. These points essentially amount to a small discount on every purchase — making it that much easier to pay your bills fully.
Cons of Credit Cards for those with Bad or Fair Credit
Deposit Requirements
Secured credit cards require you to put down a security deposit — meaning you need money to open one. If you’re living close to paycheck-to-paycheck, it can be hard to afford a secured credit car’s deposit requirement.
Easy to Overspend
Credit cards make it extremely easy to live above your means because it’s easier to swipe a card than hand over bills.
Doing this can get you stuck in debt for a long time, which could cost you hundreds of thousands in interest and harm your credit score. Plus, if you’re unable to cover your minimum payment, your credit score will take a hard hit.
Pros of Loans for those with Bad or Fair Credit
Predictable Payments
Installment Loans for folks without stellar credit are often more useful than credit cards because they’re predictable. You know what your monthly payment is, so you can fit it into your budget easily.
Plus, making your payment on time each month slowly raises your score.
Pay For Large Purchases Easier
Having bad credit can put you at a disadvantage when it comes to large purchases, such as remodeling your home. It can be hard to get enough cash.
Installment loans can help you get access to large sums of money, which may be what you need to meet your financial and personal goals.  
Cons of Loans for those with Bad or Fair Credit
You Have Less Flexibility
Credit cards offer a flexible line of credit that can be used and paid off as needed. Loans are one lump sum, and have a built-in repayment plan that typically extends through months or years.
If you’re not sure exactly how much money you may need for your project, a loan may not have the flexibility you’re looking for.
Loans come with several fees. Many are avoidable, but some are mandatory.
You may owe processing and origination fees when you take out the loan. If you are late on any payments, you have to worry about late fees, too.
It is possible to get loans with minimal fees, but this is an important factor to watch when selecting a loan.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
Source: iQuanti, Inc.