Credit. It is what separates us from the lower primates. This gives us temporary access to other people’s money; money that we can use to finance aspirations that are greater than if we were to limit our money. The lenders get interest, the borrowers get leverage and the economy grows. What is there not to love? Without credit, capitalism would stagnate.
But who to borrow? There are thousands of institutions in borrowing money, some even wearing the imprimatur of the Federal Deposit Insurance Corporation. So it’s just a matter of going to the one that offers the lowest rate, right? (See Who Backs Up The FDIC? )
The answer is both yes and no, because “interest rate” is rarely a static concept.
Bank loans versus credit cards Credio
persooFezziwi rich loans have the highest interest rates of most loan classification because they are usually unsecured. Without collateral to take possession of if you fail to repay the money, a lender has little choice but to charge high interest: higher than, for example, a mortgage or a car loan. Homes can be protected, vehicles taken back.
A typical person-rich loan from a bank – to have enough money to pay for jet skis, a vacation or whatever – will cost you around 11% on average. Let us ignore the following arguments: you should not finance such luxury; if you do that, you will get a better interest rate on a loan with equity (assuming you own a home); Borrowing from a rich family member is the way to go or to go without. Those unsecured loan rates are huge, but they are still less than the stock market price on most credit cards.
At first glance, financing with a credit card seems like a financial financial sin. We’ve all heard how the average family bears a harrowing amount of credit card debt (nearly $ 16,000, according to one estimate.) Credit card interest is so high, ranging to 79.9% in some cases, that Congress and the President felt the need to artificially cover these rates from outside the free market. Given the reputation of credit cards, that makes the question of bank versus VISA a non-starter, right? Shouldn’t you always have to borrow from a bank, whatever?
Not quite. The overwhelming advantage of borrowing on a credit card, rather than from a bank, is that only the former does not charge interest. That’s true. That is not a typo. Check your cardholder agreement if you are skeptical.
That’s right. During the first 30 days after you purchase something, it is the same on a credit card as with cash. The price stated for the item is what you pay. Keep the terms of your loans sufficiently short and you will have the lender dance to your melody. With a person-rich loan from a bank you pay interest from the day you take the money. Even if you never use it, which beats the purpose of borrowing money in the first place.
Do you choose to pay 31 days or more for an item that you have purchased on a credit card? That is the moment when you do not benefit from the inherent advantage of the payment method.
Credit card providers understand that they have a perceived disadvantage for banks, which is why the former offer additional benefits. To ensure that you no longer have to pay cash for each individual purchase, are able to dispute purchases from unsuccessful sellers and buy things with a click of a button, publishers rightly expect something in return for using a credit card. The something that the card issuers expect? To interest. And smart cardholders never give them that satisfaction.
For short-term wishes, the answer to the bank versus a credit card, the question is simple. Put every single purchase on that credit card and don’t think about it. 30 days is sufficient time. For most of us, it is two reward periods: two options to get enough money of your own to repay someone else. Plus credit cards generally come with a grace period. There are no periods of grace in the world of personal loans.
What about loans made solely to try to make more money? (Or to decorate an expression, “business loans.”) Banks, of course, offer them at better prices than people-rich loans, and for terms ranging from a few months to several years. These loans are covered by the proceeds from the company itself. Obviously, given the length of the typical business loan, and high rates charged by credit card companies, the answer to the question in this case is really clear: you should never <finance a business venture on a credit card. Yes, the founders of Google have done that in a famous way, but do you really think your startup will grow to the size of Google? The failed companies that were buried under insurmountable risky credit card debt greatly surpassed the few who successfully made this dangerous stunt. Is there
ever a justification for borrowing a credit card if you can borrow from a bank? Only in the most extreme circumstances, when you immediately need cash quickly and have no time to fuss with paperwork. As if someone is holding your daughter. The bottom line
In short, always view the transaction from the perspective of the other party. Understand the conditions and learn how you can use them to your advantage. And if a lender is willing to charge you below the market rate – such as a credit card issuer that charges 0% for the first month – smile and pick them up with that most generous offer. (Read for more information