Individuals have the choice of opting for a private loan or a credit card when seeking financial assistance. What then is the cost of a credit card compared to a private loan?
Credit cards are easy to access since any solvent adult can get one. There are also a multitude of issuing companies. Customers then benefit from an important offer.
Credit card financing allows you to obtain an indefinite credit limit. This means that the consumer has at his disposal a maximum sum which he can spend according to his current needs. At this level, credit cards appear to be flexible.
Credit card costs
The costs of a credit card are not just the interest rate, but are multiple. There are three main ones:
- Annual fees: these are the fees for managing the credit card.
- Financing costs: if you don’t pay your bill on time, these costs may include late fees, in addition to interest.
- The annual percentage rate: it includes all administration costs and all the interest on a loan.
The client is also required to make a minimum monthly payment. For most cards, this amount is the greater of the following two amounts: 5% of the card’s current balance or a minimum amount set by the companies.
The advantages of private credit
Bank credit is more difficult to access. The creditworthiness of the client is thoroughly checked by financial institutions. Banks and credit issuers also check the borrowing capacity of the consumer in order to avoid over-indebtedness.
Private credit gives access to a sum of money, all of which is directly paid into the consumer’s bank account. This sum is allocated to allow the realization of a personal project such as the purchase of a swimming pool or the financing of studies.
Private credit allows early repayment of the amount. And when the sum is repaid before maturity, the interest is reduced. In the end, if an early repayment is possible for the consumer, his credit will cost him less. Private credit also automatically includes death insurance. This insurance thus prevents the borrower’s family from inheriting the debt (except in special cases).
The costs of private credit
Private credit generates costs linked to interest rates and death insurance. These costs are more controlled than those generated by credit cards because the monthly payments are fixed. This allows better budget management
It is also necessary to pay attention to the fact that the banks which offer very low interest rates for the credits, invoice their services by increasing the rate.
What is the most advantageous solution?
It all depends on your needs and your personal situation. Generally, personal credit generates fewer fees than a credit card. The monthly payments of a personal credit are fixed whereas those of a credit card are variable and consist of many costs.
Finally, note that in the event of a financial impasse, it is possible to opt for a loan buy-back in order to adjust the monthly payments more acceptable for your budget. Do not hesitate to contact our specialist advisers.