Personal Loans

Is the Upgrade Card Better Than a Personal Loan?

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If you're financing an ongoing project or can't qualify for a fee-free loan, you might want to consider the Upgrade Card over a personal loan. The Upgrade Card works like a line of credit that allows you to take out multiple loans over time and doesn't charge any fees. In contrast, a personal loan will give a predetermined loan amount upfront and will likely charge fees, such as an origination fee.

How the Upgrade Card Works

When you get approved for the Upgrade Card, you'll receive a card that you can use to make purchases, like you would with a debit or credit card. However, the Upgrade Card is an unsecured personal line of credit rather than a credit card.

Unlike other lines of credit, however, the Upgrade Card bundles your transactions at the end of each billing period (approximately a month) and turns the sum into an installment loan with a fixed interest rate, monthly payment and repayment term. You'll then make one monthly payment to Upgrade, which will disperse the correct amount to each loan.

Your Upgrade Card account will have a credit limit of $500 to $50,000, although many people get approved for a limit of $20,000 or less. You can use your card to access the funds or take out a draw (the term for borrowing against a line of credit) by transferring money directly to your bank account.

The Upgrade Card is a closed line of credit but functions similarly to a revolving credit account, meaning you can take out multiple draws until your total balance reaches your borrowing limit.

The interest rate and repayment terms for the installment loans are determined when you open your account. If Upgrade changes them in the future, the change will only apply to new draws—your current loans' rates and terms are locked in.

The Upgrade Card also doesn't charge any fees: There are no application, origination, transfer, annual, prepayment or late payment fees. So using—or not using—your account won't cost anything extra.

How a Traditional Personal Loan Works

A traditional personal loan is a type of unsecured installment loan. A lender can approve you based on your creditworthiness and offer you several options with different repayment terms, interest rates and loan amounts.

Once you accept a personal loan offer, the lender will send you the entire loan amount and you'll repay it over a set period. Often, personal loans have a fixed interest rate and monthly payment.

Unlike a line of credit, you can't make multiple draws against your personal loan. If you want to borrow more than your original loan amount, you'll need to apply for a new loan.

Many personal loan lenders charge an origination fee, which may be around 1% to 8% of the loan depending on the lender, loan amount and your credit. For example, Upgrade offers a personal loan in addition to the Upgrade Card, but its personal loan has 2.8% to 8% origination fee.

Late payment fees are also common on personal loans. You might also be subject to a fee if you want to pay off your loan early, but many lenders don't charge a prepayment penalty.

Should You Get the Upgrade Card?

The Upgrade Card could be a better option than a personal loan if you need to finance a series of purchases or aren't sure exactly how much money you'll need.

For example, if you're financing a home renovation project and plan to make payments as your work progresses, you don't necessarily want to borrow and pay interest on all the money upfront. Instead, using the Upgrade Card to borrow as you go could decrease your costs.

Because it doesn't charge any fees, the Upgrade Card could also offer savings compared with some personal loans or other lines of credit. However, figuring out which is best is going to depend on each lender's offer.

Upgrade lets you apply for a prequalification with a soft inquiry, which won't impact your credit scores. You can then see your estimated rates, terms and credit limit or loan amount for the Upgrade Card and Upgrade personal loan. Upgrade will perform a hard inquiry when the card is issued if you accept the offer.

Compare Upgrade's offers to prequalification offers from other personal loan lenders. To save time, you could use a tool like Experian CreditMatch™ to quickly compare options from multiple lenders.

You may find a personal loan is best if you can get approved for a loan without an origination fee or with a lower interest rate (through SoFi, for instance). Or, if you need a large loan, a personal loan may let you borrow more than your Upgrade Card's credit limit.

If you're comparing an Upgrade Card with a credit card, consider that the Upgrade Card charges daily interest on every transaction. A credit card would probably be better for making day-to-day purchases if you pay your bill in full each month, as you won't pay any interest. Many credit cards also offer rewards on purchases and have cardholder benefits.

A credit card can be the more expensive option if you plan on using it to make large purchases and paying them off over time. Unless the credit card has a promotional interest rate, the Upgrade Card is likely to offer a lower interest rate and fewer fees than a credit card.

Compare Offers Before Choosing

There are pros and cons to every financial product, and finding the best one depends on what you're financing and the offers you get from lenders. Shopping around and comparing several options before deciding on a loan, credit card or the Upgrade Card could help you save money.

The CreditMatch™ personal loan marketplace lets you compare basic loan details from Experian's partners, and filter options based on your desired loan amount, repayment terms and estimated credit score range.