Imagine the situation: you get an opportunity to have an unexpected vocation of your dreams or the store arrangesa sale of excellent TVs that you have been eyeing for a long time, but you don’t have the right amount of money. Borrowing from friends or relatives is not possible. How to borrow money and where to do it? We will tell you how to choose the most suitable option.
There are many ways to borrow money. The most popular is to get a personal loan or credit card. Which one to choose? It all depends on the circumstances and the situation in which the loan is issued. Therefore, it would be more correct to break it into two clarifying questions: “What is easier to take – a loan or a credit card?” and “What is more profitable to take – a personal loan or a credit card?”
To begin with, we will understand how the personal loan differs from a credit card.
Peculiarities of a personal loan and its characteristics
A loan is issued for very specific purposes. The bank will immediately ask you where you plan to spend the money, and, depending on this, they will offer you a specific loan product. The main types of personal loans are:
- consumer (for example, the purchase of household appliances);
- mortgage (if you are going to buy an apartment or a house);
- cash loans.
A loan is issued for a specific period (for example, 1-2 years) and can be extended with the mutual consent of the bank and the borrower. The interest rate on it, although stipulated, can vary (if the contract provides for a floating interest rate).
Sometimes, when applying for and repaying a loan, the borrower has to pay various additional payments and commissions, which can increase its value. As a result, the effective interest rate, taking into account all expenses, may be higher than the declared one – the one that is displayed in the advertisement. But the effective interest rate should always be reflected in the loan agreement. Therefore, before signing it must be carefully read.
The loan can be provided both in cash and non-cash. Often the client does not deal with money at all. When applying for one of the most popular personal loans – consumer loans – the borrower receives for use not the amount, but the desired product.
Finally, when applying for a loan, the amount that the borrower receives is always rigidly fixed. And he begins to pay interest from the next day using it.To avoid problems, a monthly loan payment must be paid on time. And it’s better to do this a couple of days before the settlement date, in order to take into account possible delays when they are credited to the right bank account.
Pros and cons of a credit card
Credit card is a more “free” type of loan. It enables the client to use the borrowed money at their discretion, making many small and medium purchases. Their number and size are limited only by the credit limit, which the bank sets individually for each card.
In the case of a credit card, the client pays for using only that part of the money that was actually spent. If you do not use borrowed funds, then you will not have to pay anything.An indisputable plus of a credit card is that a loan on it can be completely free. Each credit card has a so-called grace period. It usually lasts from 30 to 90 days. If you manage to pay off the debt on the card before it ends, then the bank will not take interest on the use of credit money from you. And, if the debt is always repaid in a timely manner, then it can be used an unlimited number of times. A credit card will be active until it expires. After that, you can re-release it and use it further. Of course, if the bank has no questions about your payment discipline.
Butit has its own nuances. If the bank for some reason doubts the financial reliability of the client, he can unilaterally at his discretion reduce his credit limit or even deprive it. This happens infrequently and, as a rule, unexpectedly.
Also, it is better not to use the card to withdraw cash at the expense of the credit limit, because when withdrawing money from an ATM or cash desk, a commission of 4% or more is charged. It is beneficial to pay with a credit card in places where there is a payment terminal. Such an operation will take place without extra commissions.