When we are in financial trouble, what is better, ask for a credit or draw a card? Know the advantages and disadvantages of both options to choose the one that suits you best according to your financial needs.
You reach the end of the month and you don't have money to pay for the purchase. You have two options: credit card strips to be charged the following month, or request a personal loan to be able to get out of this financial doldrums and face expenses little by little.
It may be a situation in which you have found yourself and not knowing which of the two is the better option. To clear up doubts, we are going to analyze how each of them works, and depending on your profile, you can decide on one or the other.
How credit cards work: advantages and disadvantages
Credit cards are mini - deposits that you have with the bank. That is, you have a maximum amount of money that you can spend, without necessarily having it in your account. Over a period of time (generally a month), the operations you have carried out are accumulated and at the end of that time, they are all charged together to the account to which the card is associated.
Therefore, you can spend up to a maximum amount of money on credit, but you must have that money in the account when the total expense is charged. Otherwise, the bank will charge you a series of interest, which is known as APR (annual equivalent rate). This percentage is established in the conditions when signing the card contract. It is highly variable, since it can range from 6% to 50%, but the average is around 18%.
Some credit cards have a minimum spend. This means that the entity with which you have it forces you to spend an amount every month with this card or they will charge you for the maintenance of the card. Other entities directly charge the service without establishing what you have to spend. You should check with your bank about the types of card and the conditions that each of them has.
How personal loans work: advantages and disadvantages
Personal loans work like those requested to buy a car, for example, although not like a mortgage, since in this case you have to pay Euribor and interest. In a personal loan, an amount of money is requested, and a maximum time is set to return it. From there, a monthly installment is determined in which the capital loaned by the financial institution is repaid, along with the corresponding interest.
No two personal loans are the same, so fixed interest rates cannot be established. It will depend on the amount requested, the time to return it, and the situation of the applicant in terms of monthly income and expenses. In general, the shorter the time it takes to return it, the lower the interest.
Another point to consider in personal loans is that depending on the conditions established by the financial institution, you will have a series of penalties or not. For example, you collect the extra Christmas pay and you prefer to remove an amount from the loan at a stroke, if in your conditions it is established that you have a penalty for amortization, you will not be able to do it because it will not compensate you. However, if you do not have this clause, you will be able to remove the loan more quickly and reduce your interest to pay.
Cards vs credits
At this point, what is the best option? Like everything in life, it will depend on the situation. If it is a one-time expense for an unexpected purchase, and you are going to collect your payroll soon, you can opt for the credit card. However, it is always advisable to have good savings habits if possible. To manage your economy automatically and see your monthly expenses at a glance, the Fintonic app can be very useful. It will serve as your financial advisor and will allow you to increase your financial cushion to cover unforeseen events.
However, if you want to acquire a good of a higher value, you are going through a more delicate economic moment, or you have had more expenses than usual that have unbalanced your accounts. The best option will be to apply for a personal loan. In this way you will not be overwhelmed every month waiting to collect to be able to deal with the charge on your card. In addition, you will never be able to live up to date, nor save and have a saving habit. Therefore, in case you need that injection of capital to help you maintain your life and to be able to organize your finances again, you can request a loan.
Before requesting it, it is important that you know your borrowing capacity. You can do it with the Finscore index. It is a scale that indicates your credit score, that is, your qualification as a payer. This indicator measures your income, your expenses, your overdrafts, your credits, etc. In this way, you get real information on the state of your finances and you can negotiate better conditions with the entity. The higher the score in the FinScore, the lower the interest rate on your loan.