Loans Vs Credit Cards | Which is the Cheapest Option?
When thinking of financial solutions, the main though that pops in our heads are personal loans and credit cards. We think that perhaps both are convenient, but how are they similar? What are their differences? Which one is better? And then, other questions come to mind regarding revolving loans. What are they? Are they equivalent to credit cards? Explore the market options and then choose your best financial deal.
What is the difference between a personal loan and a credit card?
Credit cards as well as personal loans consist in types of credit that financial institutions provide to clients. Clients can ask for similar amounts with any of these services. They may seem similar though they have many differences. Let us explore some of the differences between both services:
Personal or online loans
are meant to last only for a selected period of time, meaning, a finite period.
Credit cards consist in revolving lines of credit (they are not meant to last for a finite period, which means they do not work in terms)
Clients can ask for a loan from a minimum term of one year to a maximum of ten years in some cases. At the beginning of the term, clients receive the loan amount entirely
With loans, you carry out payments in order to pay back the loan amount
If you go for a credit card, then you will be given a credit limit and you will have to make nonstop repayments in order to keep using your account
Within that limit, you can spend all the money you want and need, freely
The company will ask you to repay part of what you have spent monthly (a percentage)
Which one is better, a loan or a credit card?
Each of them has benefits and disadvantages. Personal loans and credit cards are similar, but it actually depends on the tastes and preferences or needs of customers. These are some features you should take into account in order to decide which one you think is best:
Both are forms of credit
Both ask clients for a monthly repayment
Credit cards offer balance transfers, days that are free o interest, and rewards
If you need debt consolidation, a personal loan is much better since it allows you to have a better control of the different debts into only one debt
Credit cards allow for annual fees and it is quite common
Personal loans have to do with monthly service fees and processes of application
Is there a difference between a revolving loan and a credit card?
A revolving loan is quite similar to overdrafts and credit card loans. They are actually considered by some as revolving loans per se. a revolving loan is an arrangement that allows the amount of the loan to be repaid, withdrawn and redrawn in different circumstance as needed. It can be done as many times as you may need. It will last until this arrangement expires. Revolving loans are also known as revolving credit.
What is a revolving loan and how does it work?
Understanding a revolving is not difficult. It is a type of loan that financial institution issues that will allow a client to get the necessary flexibility to repay and withdraw. It may be considered a financing tool that is quite flexible because of its flexibility for re-borrowing and repayment. It does not consist in a term loan, since you can take out the loan again or repay it. On the contrary, a term loan would give a customer the funds with a payment schedule that is fixed.
How does it work?
It can be used by private or public businesses
The line is variable, which means that this credit line may fluctuate
You may be charged a fee by a financial institution if you decide to extend the loan
In order to be approved for this loan, the financial institution will analyze your financial statements, statements of cash flows, income statement.
What are the main disadvantages of revolving loans?
There are some disadvantages of revolving loan or credit that we should take into account if we are thinking of embarking upon it:
If clients are unable to pay back what they have borrowed monthly, they will be charged high interest that could affect their budget
If it is misused, it can be great disadvantage. You may carry out purchases that were not planed and were done as an impulse
You may take up reckless habits if you do not control yourself when it comes to purchases or unnecessary ones. You may want to set a spending limit
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Which are revolving loan benefits?
Revolving loans have advantages too and can help clients enormously by providing them with help:
Revolving loans are convenient and flexible
This type of credit enables customers to use the amount you need, respecting a credit limit that was set
Once you have paid what you used before, you will have access again to the full amount and it will be available to you
Clients do not need to re apply every time for revolving credit
You can a build a credit profile or history with revolving loans. As long as you repay debts in a consistent manner, then you will be showing that you are responsible and worthy of credit.
In your credit score, this could play a major factor, especially when clients decide to apply for personal loans, vehicle loans and mortgages
How to pay off a revolving loan?
In order to pay off a revolving loan, you need to make sure to have covered all the debts you had, meaning, the already existent ones. It is strongly advisable to keep a track of the purchases you make and what you spend your money on, so that you don’t end up in more debt. Credit cards as well as revolving credit or revolving loans have been considered dangerous if you do not set a credit a limit and have control of your expenses. The main disadvantage of credit cards is that you do not see the visual money, and so you may lose track of the amount you have and so you may end up in debt really quickly, spending more money that you can actually afford.
Where can I get personal loans from credit card companies?
These are some of the companies in South Africa that can provide you with personal loans, as well as credit cards:
All these companies state that they provide personal loans, as well as credit cards. Each of them offers alternatives for loans and credit cards that you can use in your favor and in different ways. Virgin Money, for instance, offers personal loans that start at R80000 to R250000. With this company you can:
Access repayments per months that remain fixed
Get to choose the loan amount of your preference and the rate at the lowest percentage
The money will be available to you at the moment your loan is approved
Access rates that start at 12.9%
Are there repayment calculators for revolving loans?
Some companies, like Standard Bank, offer repayment calculators for revolving loans. They allow you to compare between overdraft, term loans and revolving loans. For a revolving you need a monthly income of R8000 (minimum) and a loan amount of R 300 000. You would have sixty months to repay the revolving loan. The interest rate is personalized and the term is quite flexible. If you pick, instead, overdraft, you can access with the same amount in your income, but you would have a loan limit of R200000. The months to repay are recurring. The term is flexible too.
How is interest rate for revolving loans?
Interest rates for revolving loans can be personalized at some banks, such as Standard Bank. The calculator you can make use of for interest rates is the same as for personal or unlimited loans. Imagine that you pick a loan amount of R80000 and decide to go for a loan term of seventy two months. The interest rate could be variable. It could be set at 20, 50%. Therefore, in this case, the estimated repayment per month would be of R 2 038. The total fees and interest would be of R 927.
In conclusion, both loans and credit cards in South Africa can be quite useful and convenient, depending on what you are looking for. Personal loans may have a different purpose than credit cards and may be a way better to deal with debts and avoid them. If you do not have much discipline, it is advisable not to rely on revolving loans since they work like credit, which means you could end up in more debt. Explore possibilities for revolving loans, bearing in mind its advantages and disadvantages.
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Questions and answers
Is Virgin Money a credit card company?
Yes, it is company that offers both credit cards and loans
Do I have a limit?
In general, the limit for loan amounts is set by the company
Could I get a credit with Sanlam?
Yes, it is one of the companies that provides credit