Credit card or consumer loan. Which one pays off?

| 20.02.2018

Credit card or consumer loan? 

Car, vacation, house, family. We want it all at once and, if possible, instantly. Nevertheless, we cannot have everything we wish. We need to plan our goals. Not only to set a timetable but also to plan their funding. Using a credit card or consumer loan is a quick and simple solution if we spend more than expected or need to finance a one-time investment. But do you know which product suits you best?

Consumer loan

If you plan a one-time loan to finance, for example, reconstruction of your house or purchase of a car, a consumer loan would be the best choice. You can get a loan up to approximately 30 000 EUR. The benefit of a consumer loan is that you do not need to document the purpose for which the money is to be used.

Credit card

If you travel a lot, you should always have a credit card in your wallet or purse. It allows you to easily book your flights, hotels or rental cars. Do you buy online? A credit card is a simple way to pay for what you buy in international e-shops. A credit card is also very handy if you have to pay smaller amounts that you can then repay free of charge during the interest-free period.

Credit cards are also great to bridge a short-term loss of income. A great benefit is also the flexibility of repayment of debt; it is up to you when and how much of the funds you have drawn are repaid. Credit cards are often offered in combination with various reward programs so that you can use your card without a monthly charge.

What are the differences?

A consumer loan and a credit card mainly differ in the way in which they are used. For a consumer loan, the whole amount is drawn once and afterwards it is paid back. Credit cards are used repeatedly either for regular purchases or unexpected expenditures. You have a financial reserve always at hand.

In comparison with a consumer loan, credit cards have one benefit: the bank grants you a “loan” free of charge if you manage to pay back the whole amount within the specified interest-free period. Many people cannot imagine how it works. Therefore, we explain it with a typical situation:

Your washing machine stops working. You did not expect this expense now and it is still seven days till your salary comes. You buy a new washing machine and simply pay for it with your credit card. That means you have borrowed money from the bank. You wait and settle the debt when your salary is credited to your account. If you settle your debt before the due date, the bank has lent this money free of charge within the interest-free period. The interest-free period is usually 45-50 days.

When making financial plans, it is important to choose a suitable product that helps you to achieve your goals. You only need to know your current needs.

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