When is it better to get a loan and when to get a credit card?
Miscellaneous / / September 18, 2023
Depends on the amount you need and the purpose for which you need the money.
Let's compare two banking products to determine when it is more profitable to choose each of them.
What amount is available to the borrower?
In both cases, the bank provides the opportunity to use your money and charges a fee for it.
Allows you to receive a large amount - up to several million rubles. This money is issued at the same time - in cash or by transfer to the borrower's debit card. They can be spent immediately or later.
Loans have disadvantages - they are not given to everyone. A significant amount can be obtained if the bank considers your monthly income sufficient. Before deciding to issue funds, the bank will check your credit history. It’s good if you don’t have any arrears on other loans and your debt load isn’t too high.
This is a plastic card that is linked to a credit bank account. Its owner can use the bank’s money within the credit limit provided to him. As a rule, this amount is significantly less than the size of the loan: for starters, the bank can offer a limit of 100 to 200 thousand rubles. Therefore, a card can often be issued by presenting only a passport.
Over time, if you pay off your debt regularly and on time, your credit limit may increase.
For what purposes can the borrower spend the money?
No, he does not always have the right to make any purchases - sometimes banks impose restrictions.
There are two types - non-targeted and targeted. In the first case, the borrower can spend the money at his own discretion. In the second - only for the stated purposes. For example, for the purchase of an apartment - in this case, a mortgage credit. In addition, the bank's clients have access to loans for business development, as well as educational, automobile and other types of loans.
The person must indicate the purpose of receiving money in the agreement with the bank. You cannot spend the money on other needs: a mortgage loan will not allow you to pay for a new car. But interest on targeted loans is often lower.
The owner can spend money on anything, but only within the limit allocated by the bank. Moreover, until the first credit card transaction, he is free from obligations to the bank. Money is considered issued to the recipient not after the card is issued, but after its first use - paying for purchases or withdrawing cash.
How is interest calculated and when should you repay the debt?
Typically, interest rates on credit cards are higher than on loans. In the first quarter of 2023, for consumer loans, borrowers had to to pay on average 19.52% per annum. For money from a credit card - 30.62%.
All funds are issued by the bank immediately, and interest accrual begins immediately upon receipt of the amount. The borrower may not touch the money for a whole month, and then spend them in parts. But for this month, as well as for all subsequent months, the bank will still charge interest, and on the entire amount of the debt.
To repay the loan, the recipient is required to make payments on schedule. Every month, before a certain date, he must transfer at least the amount specified by the bank. Regular payments include part of the principal plus interest. It is possible to make a late payment or pay a smaller amount, but it is very undesirable - this will worsen your credit history.
The advantage of the card is the grace period. Usually it lasts from 50 to 120 days - the period is set by the bank. If you make a purchase and then return the money to the card during this time, you do not need to pay interest. When you pay back the money in full, the grace period will start again.
If you fail to meet the deadline, considerable interest will be added to the amount. Their size depends on the bank, but it is always larger than the size percent on loan. Moreover, interest will be accrued for the entire period that has passed since your settlement with the store.
Therefore, it makes sense to make only small purchases with a credit card, the cost of which you will have time to repay during the grace period. In this case, the bank can set a minimum payment - for example, from 3 to 10% of the debt amount monthly, and it will be necessary to repay it. But the main thing is to manage to pay off the debt on time. Then you won't have to pay interest.
However, there are no completely free banking products. As a rule, a certain amount is charged annually for servicing a credit card. Moreover, the debit card service usually costs less.
And one more thing: it is not advisable to withdraw cash from credit cards unless absolutely necessary. If you cash out a larger amount than specified in the agreement, you can pay more than 50% per annum on top of the debt.
For how long does the borrower receive money?
There are important differences here too.
It is always issued for a specific period specified in the contract. After the final settlement with the bank, the loan is not renewed. To receive a new amount, you need to conclude another agreement with the credit institution. This means collecting the necessary documents again and waiting for the bank’s decision.
Map is valid indefinitely. Once you've paid off your debt in full, you can think about your next expenses. The cardholder will have access to the same or an increased credit limit - the bank will inform you about its amount. The grace period is also renewed.
All that remains is to pay an annual card maintenance fee. And reissue the plastic when it expires.
Are there any bonuses for the borrower?
Here cardholders are a clear winner.
There will be no bonuses. You will pay the amount the seller demands and will not be able to get any of the money back. The amount to be returned will be written on your agreement with the bank. As a rule, the loan can be repaid earlier, but the interest will still have to be paid in full - there are no concessions here either.
Banks often provide the opportunity to receive cashback for card purchases. Some bank partners can return up to 25% of the cost of purchases - this money comes to the card next month. Before choosing a card, it is worth looking at which stores, cafes, fitness clubs, and airlines return bonuses to clients of a particular bank. And, other things being equal, choose the financial institution whose partners are stores where you often shop.
What should a borrower choose - a card or a loan?
Calculate what will be more profitable in your situation.
When you need a large amount for a serious purchase, you should take out a loan. But if you plan to occasionally purchase something not very expensive - a product or service, the cost of which you can pay off during the grace period - it makes sense to get a credit card.
Perhaps you don't need the money urgently. But you would like to get them without any problems if you suddenly have to make unplanned purchases. Then you should also contact the bank for a credit card. But don’t activate it ahead of time.
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