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What to choose: A loan or a credit card

What to choose: A loan or a credit card

When you need money, but can’t ask for a loan, you should go to the bank. But which is more profitable: a credit or a credit card? These two products are approximately the same in demand.

I suggest that you understand the basic principles of credit and credit card, and get to know their strengths and weaknesses in order to understand which is better in your situation.

The basic principles of credit

A credit (loan) is the provision of money by a financial institution to a borrower with a condition to return it, as well as the payment of interest.

It is divided into two types:

1. Targeted – under the program, money can be spent to pay for a good or service (for example, to buy large household appliances, medical treatment, education).

2. Non-purpose – money is given in cash. The borrower can spend it at his discretion, he does not need to report to the bank.

Useful to know: target and non-target loans are granted for a predetermined period and with a definite interest rate. These conditions are dictated by the chosen bank.

The registration of the loan is accompanied by signing a contract and receiving a schedule. The dates of payments and the amounts are indicated in it.

To understand what is better – a consumer loan or a credit card, let’s move on to it.

The basic principles of a credit card

A credit card is a bank card to which a loan is credited with a condition of repayment. The money can be spent in full or in part. Once the debt is repaid in full, the limit is automatically restored and can be used again.

Important: Credit cards are endowed with a grace period, when interest is not charged for the use of the bank’s money. But provided that the debt is repaid in full by the stipulated deadline.

What is better – a credit or a credit card

To understand this, I propose to consider the advantages and disadvantages of each product.

The strengths of the credit

These include:

✔ The low rate when compared to credit cards.

✔ Amounts that exceed credit card limits.

✔ Free service and maintenance of the credit account.

✔ A fixed amount that prevents you from spending more.

Credit weaknesses.

Why credit cards are better than cash loans will allow you to understand the disadvantages of the latter:

✔ The limit is not renewable, even after full payment of the debt.

✔ A fixed term that cannot be extended.

✔ Interest is charged on the whole issued amount, even if it will be used partially.

✔ Early repayment is possible only after submitting a request to the bank.

The strengths of the credit card

These include:

✔ A grace period – the bank lends money at 0% if you pay it back in full by the due date.

✔ Renewal of the limit, so you don’t have to go through the loan or credit card process again and again.

✔ Interest is charged on the amount spent, not on the entire limit.

✔ Cashback, which is connected to the card, allows you to get back a portion of the money you spend.

Weaknesses of the credit card

Still don’t know what is more profitable – a credit card or a loan? Then I’ll consider its disadvantages:

✔ The grace period does not apply to all transactions. Most often after withdrawal of cash it is canceled and interest is charged. But there are exceptions.

✔ High rates if compared to loans.

✔ Cash withdrawal is accompanied by a fee.

✔ The limit is less than the one declared by the bank. However, if you use the card actively, it can be increased.

✔ Servicing of the “plastic” is paid, but there are exceptions.

The difference between a loan and a credit card in terms of processing

Important: It’s not that easy to apply for a loan. After all, when lending a large sum of money, the bank is taking a big risk.

He wants to first verify the solvency of the applicant. Therefore asks for a whole set of documents. The income certificate is required in 80 out of 100%. In addition, banks have requirements for the size of your salary. If it is not met, it is possible to get a loan at all.

Banks issue credit cards with great reluctance. At the expense of a high rate, service charges and fees, the lender compensates for its risks. It is also possible to get a credit card with a borrower’s reputation that is not ideal.

What is the difference between a credit card and a loan

It is useful to know that financial institutions have no right to charge fees or commissions. This is what the law says.

But it is possible to impose a fee for servicing the “plastic card”. Therefore, before signing a contract with the bank, find out how much it will cost you to maintain your credit card. The amount can be charged as a lump sum or every month.

When drawing up a loan, the bank’s employee imposes insurance on the client. It is voluntary, so you can refuse it. However, because of this the rate is likely to increase by about 2-5%.

Conclusions of the publication:

What’s the difference between a credit card and a loan (cash or targeted)? Both are banking products that allow you to get money in debt. After the allotted period of time, the money must be paid back, along with interest. Both products are in demand.

Before you decide for yourself which is more profitable – a cash loan or a credit card, think about the future use of the money. If you need a reserve to keep in your nightstand, choose a credit card for the lowest overpayment. If you need cash, a loan is better. After all, cashing out the limit from the card comes with a fee.

When you often need small amounts, a credit card will help. If you return the money before the interest-free period is over, you won’t overpay anything. If you plan to make a major purchase, you may prefer a loan.

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