Credit card and consumer credit are two of the most common products in the financial market. This will be your guide to choose which one suits you best.
The question about which product suits you best, a consumer credit or a credit card, forces another question: why do you need money?
The financial market designs products according to the needs of its customers.
Let’s look at the differences between these two:
The credit card is a means of payment , which allows you to pay almost everything you want to buy, charged to your account. As you can see it is very useful to go shopping without carrying cash, to go on a trip, to have dinner or to enter the theater.
The consumer credit is a loan granted by a financial institution, which you can use, for example, in the purchase of a vehicle, in equipment, remodeling, study or medical treatments. The institution records the money in your account and you don’t have to explain what you spend it on. Normally, it is intended to cover a specific need.
The risk issue
Both products have in common the high risk of approval for the bank. In the case of the card, it gives you a limit that you can use 100%. You are free to choose the term for each purchase you make, between one and 48 months. How does the financial institution support this debt? With the promissory note you already signed, of course. But if you have no resources … In the case that you stop paying, you will have to turn to your experience to collect. The same goes for free investment credits. The bank gave you money in your account, they agreed on a term, some installments, and expect your goodwill and financial capacity to pay.
Therefore, both products stand out in the financial market due to their high rates . They are high risk for the financial system. And, at higher risk, higher rate.
For financial institutions it is a good business, as long as the unpaid portfolio remains in good condition. For you? Let’s see:
The matter of fees
Free investment credits will allow you to acquire goods that, otherwise, you could not do at this time. For example, you want to change the vehicle and you need $ 30,000 MX pesos. This credit is approved in hours (as long as you have a good handling of credit cards, public services, mobile accounts, etc.), which is very tempting. Probably, the excitement of doing business is so much that you forget a detail: the cost of borrowed money. The rate can be really high, between 25% and 150% annual cash depending on the lender.
Is it justified to pay up to four times the money in a year? It depends on your need, of course.
It is very common to use these credits to start a business. You buy some computers, the dental office chair, some office furniture, a bakery oven or the supplies to start your nursery. Billing revenues will pay off the debt. It is a good business? If it is the way to start producing, everything indicates that it will be worth it.
When is it not recommended to use the credit card?
- Personal finance experts in the world recommend not using the credit card when you don’t have money. An interesting contradiction. The reason is simple: if your expenses are greater than or equal to the income, you will not be able to assume the value of the interest generated by the credit card.
When you choose to pay 36 installments, that is “normal”, and prefer to pay only the minimum (instead of full payment) you are doing this business: you pay capital (the purchase value) only a small part; Each month, you are paid interest on what you owe. Thus, even without buying anything else, it will be difficult to lower the value of the debt.
Therefore, buying at a single fee is ideal. You defer payment, do not carry cash, earn miles and do not pay interest.
- If you need cash, do not fall into the temptation of consumer credit or withdraw cash with your credit card. You increase the problem, duplicate it, triple it, quadruple it!
Now, if you’re doing accounts and wondering if you take another card or consumer credit because you want to end your debts, there are other solutions. There are other financial products that can help you better.