Estimated reading time: 7 minutes
Expenses crashing down unexpectedly on you without enough savings could lead you to credit card or bank loans. Which is better for you?
Credit Card Loans Vs. Bank Loans
There are options for those struggling to get ahead, provided you find one that works with your budget.
In this era of digital transactions, credit cards have many uses, ranging from cashless transactions and reward points to special deals.
Mrs. CBB and I typically only use our credit cards for purchases because of the perks.
We pay our credit card in full at the end of the month and hardly ever have to step foot into our bank.
Credit cards offer the convenience of shopping almost anywhere with a swipe or insert payment option.
If handled correctly, credit cards can be a source of freebies and financial help if you are stuck without emergency savings as a backup.
Even if you have savings, they are sometimes not enough, depending on the circumstances.
In addition, you can access a fast pre-approved loan within and sometimes over their credit limit.
The company advances you the amount you can pay later with a defined interest rate.
1. No need to submit documents when requesting credit card loans
Since it is pre-approved, the need for additional documentation is eliminated, making processing and disbursement of the cash super-fast.
Some banks may offer loans to users with credit card loans from another bank.
This is possible through a balance transfer, which allows transfers of outstanding balances.
That streamlines your access to cred, and you have to pay to one entity instead of following up with many.
2. No collateral to all eligible parties
He, re you get unsecured financing.
Due to this fact, issuers have stringent qualifications and eligibility criteria that see only a few qualified.
To be able to apply for a loan, you need to have a good history with a commendable purchase and repayment pattern.
Related: Get your free credit report, Canada.
Note that this method of getting financing is best for people who discipline themselves financially.
Generally, it is wise to take up such financing when you are confident that whatever you’re investing in will help you to pay the entire loan plus interest.
You, therefore, use other people’s money (without touching your funds or injecting additional capital) to grow your business and increase your profits.
Be smart with your money; it will work for you and not against you.
3. Your allocation is based on a revolving debt
There is a ceiling on the maximum amount of cash you can.
This is mainly determined by:
- Your monthly expenditure
- Your repayment patterns
If the patterns are correct, you can easily access a reasonable amount of cash to care for your urgent but calculated financial obligations.
This fact reiterates the importance of only using such allocations for worthy purposes and only when you’re sure of repayment.
4. Credit Card Loans are best for short-term financing
This is because credit card loans come with a high-interest rate.
It would be best if you only used such provisions to make purchases or payments that you can pay off quickly by or before the due date.
Astute business people face cutthroat competition and have to always be on the lookout for opportunities.
Sometimes, opportunities arise that need quick financing but also come with immediate possible repayment.
Such short-term financing needs can be quickly taken care of by a credit card loan.
Usually, on your due date, you will be obligated to pay a minimum amount every month, around 1% – 3% of the total balance.
The interest rates are computed based on the average daily balance instead of the ending balance for any given month.
It’s essential to understand how loans are computed before you say yes.
The element of financial surprise is the hardest thing for people to deal with when there is no spare money kicking around.
5. Credit card loans are attractive and enticing
They are just too good to resist.
They are positioned to appear like they are the only thing you need for all your financial needs.
A few of the attractive aspects are:
- With such financing, you can make expensive purchases by breaking the payment into monthly installments.
- Some issuers will allow you to transfer the outstanding balances from other banks.
- Most do not require a guarantor.
- Application and disbursements here are quick compared to other methods.
- You mostly have unsecured and pre-approved access.
Most will offer zero interest on purchases provided you pay your bill within the provided grace period.
You can also use sign-up bonuses such as flyer points or cash.
Another thrifty trick that some people use is putting money in a savings account so that it accrues interest and then using the card to make purchases.
This way, they still earn interest on their banked money as they continue to spend and care for their needs.
We hardly carry cash because we’d rather have our money building interest in our bank account until it comes time to pay off the credit card.
6. You can use credit card loans to consolidate debt
Both credit cards and personal loans can be brought together and used in rolling multiple debts into a specific payment.
When you can pay off your debt quickly and have an excellent credit rating, the best option could be a balance transfer.
This allows you to move high-interest debts to a credit card with zero-interest introductory rates.
Related: How to bulldoze your debt
However, you must put a plan in place to pay off the entire debt at least before the 0% rate period elapses.
Failure to do that will attract an interest rate on your remaining balance and a retroactive interest on your initial balance.
For balance transfers, some providers charge between 1% and 5%, while others charge zero.
This option benefits more if offered a lower interest rate than you can pay on your existing debt.
This means you can save money or pay back your loan faster.
7. They attract different types of fees
The convenience attained comes at a cost if you are not careful, but some of these fees can be avoided by observing due diligence.
The fees may include the following:
- Annual fees
- Late fees
- Returned payment fees
- Foreign transaction fees
- Balance transfer fees
- Expedited cash replacement fees
Therefore, you must check all applicable fees and ensure that when you take this route, you can find ways to avoid paying anything unnecessary.
Unless your credit rating is good enough to allow access to a 0% interest promotional offer, a credit card is an expensive alternative for long-term finance.
However, they still overshadow getting bank loans for the reasons mentioned above.
Should you decide to take up a credit card loan, here are some things you should consider:
Credit Card Loan Considerations
- Make sure you shop around for the best service provider who fits your needs. You will come across differentiated interest rates and reward regimes.
- Don’t just glance at the provisions. Read everything so you aren’t surprised later on.
- The total cost is affected by interest rates, grace periods, and penalty fees.
- If you didn’t pay your balance in full, make a settlement as soon as possible, and don’t wait for the due date.
- You can schedule automatic payments online or mail weekly to avoid late fees.
- Keep track of your balance either by phone or by checking online.
Related: How to handle a missed bill payment once and for all
If you discover you will have a late fee, contact your service provider and find out what alternatives they have for you.
Explaining your financial situation is better than avoiding it and dealing with consequences down the road.
Finally, when you realize you have a credit problem, it’s always prudent to contact the card company and stay calm.
They can offer realistic schedules when you make them aware of your intentions to pay.
They want their money, and if you’re willing to work with them, most often, they will respond.
Discussion Question: Have you ever used credit cards or bank loans for short-term obligations?
Please leave your comments below.
Thanks for reading.
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