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Credit card or cash – what to choose?



In the case of large-scale purchases, there are usually three payment options. Own funds, loan and a credit card. If with the first case everything is clear, then the difference between personal loan and credit card is not so obvious. This is normal; not everyone is used to using such products. Our task is to help you decide what to choose in a particular situation. After all, even if you have your own funds for a purchase, using a credit card can sometimes be a beneficial bonus. The main thing is to know how to apply financial literacy.

Specify what the spending will be

This is important because with a credit card, the bank imposes restrictions on use. Shopping through it can even be profitable thanks to cashback and bonus programs. But direct transfers or cash withdrawals do not benefit the bank, so there are increased fees for such actions with the credit card. Sometimes it is a cancellation of the grace period, that is, interest begins to accrue instantly. This is very disadvantageous for the borrower. So, if your spending involves the use of cash or direct transfers – it is better to choose your own funds or a non-purpose loan. In the case of a non-purpose consumer loan, the bank gives you the opportunity to spend the funds as you wish, and the interest will not change. Of course, if you pay your obligations responsibly and on time.

Check the terms and conditions of the card

Some credit cards offer terms and conditions that make shopping with them profitable – even if you have cash in hand. For example, a higher cashback rate or the ability to pay for part of a purchase with bonuses. Banks get extra income when someone uses their funds, so they offer a variety of benefits for customers who use their cards. So if you have the opportunity, make a purchase with a credit card and then immediately pay it off with the money you have. That way you won’t have to pay any interest on the money you spend. The so-called grace period is now available on almost all credit cards. It allows you to repay your card within a certain period without paying interest, and this tool can be used to make a better purchase.

Calculate your budget

One of the rules of financial literacy states that you shouldn’t make commitments that will be too difficult for you to meet. Check how much money you have for everyday needs, and calculate how much the purchase will affect your financial situation. There are several options to consider: taking out a loan, buying with your own money, or using a credit card. If you understand that the cost is high, and that credit payments will take a solid part of your income, it is better to choose the savings option. Of course, if we are not talking about very large purchases like an apartment, for which it is difficult to save. Yes, credit cards can be repaid with minimum payments, but in this case the interest will be very high. Try to fit the purchase into your budget as organically as possible, so that if you choose credit funds, you do not have to pay too much for the loan.

Think about how long you will have to repay the obligation.

This affects your choice of instrument if you realize you need to raise funds from the bank.

  • In the long run, a personal loan is the best option. The interest rate on it is lower and there is less overpayment. Loans are granted for a period of six months or more, so you will have time to repay it at a fairly comfortable pace.
  • If you plan to pay off your obligations quickly, within a month or two, a credit card might be a good idea. With a grace grace period, you can close the commitment without paying any interest at all. In this case, you will still receive a cashback and other bonuses for card users. But long-term repayment credit cards are not profitable, because they have a higher interest rate.

Be sure to check the terms and conditions for each offer you want to accept. Keep in mind that the actual terms may differ from those described on the bank’s page and depend on the credit history and ability to pay.

Be guided by the cost of your purchase.

A card’s credit limit is usually limited to a few hundred dollars. Less often, it’s ten or more. Taking out a personal loan of this amount may be easier than achieving a high limit. Usually it starts at a few thousand dollars and can easily reach a million: if the purchase is large, credit is often the only option. But if your intent is not to make a one-time purchase but to borrow money occasionally over a long period, a credit card may be a better option. The same goes for purchases that are not too expensive and that you would feel more comfortable paying for with credit card funds. Just don’t forget about making your payments on time: it is advisable to meet the grace period to avoid accruing interest.

Request a credit history

When it comes to choosing between a credit card and a loan, we recommend checking your credit history. The fact is that banks are usually more willing to issue cards, but for personal loans, the requirements for a customer’s history are stricter. If you’ve had delinquencies in the past, or if you’ve never taken out a loan, the card might be the best solution. However, it’s worth considering all of the previous points as well. Sometimes a loan is more profitable or affordable than a card, and the safest option for your wallet is to use your own funds.

We recommend turning to credit only if you are confident in your abilities and willing to make payments responsibly. Both a cash loan and a credit card can be useful financial tools and can help you a lot if you use them wisely enough.