Let’s start with the hard facts to distinguish one from the other. A credit card is a debit card that can be used to purchase goods and services. Some credit cards also give discounts when using the card as a means of payment. Unlike a traditional bank card, a credit card gives you the opportunity to postpone the payment on what you purchased.
In many ways, the deferred payment can be compared to a loan, but common practice in Norway is that this loan is completely interest-free for a given period of typically 30 or 45 days, and you do not have to pay more than the goods cost as long as you repay when The bill is finally coming. After using the card, you can choose whether you want to pay the entire credit used or a minimum amount, typically 3% of the credit used or a minimum of $ 300. If you choose to pay only part of the credit used, you will have to pay interest on the remaining credit. This interest rate is high compared to, for example, a consumer loan that often has a lower interest rate.
How much you can trade with the card is determined by the maximum credit limit the card issuer has given you. Customers can also choose to have a lower credit limit than the maximum limit the card issuer has set based on an assessment of your finances.
The benefits of a credit card are several
Among other things, there are many cards associated with travel insurance in the card. This is beneficial, for example, when the card is used for holiday and travel purchases. Especially in the summer we at Sparebanken Vest see that many people use credit cards, as many pay all foreign transactions with the credit card. This is because it provides extra security in that the amount is not deducted directly from your checking account and because you then get a better overview and good time to study the transactions when you get home in peace and quiet.
E-commerce is recommended to use credit cards, as it also provides extra security. If, for example, you are exposed to scams or fraudulent operators, the card company will take the credit if you pay by credit card. In addition, there are many credit cards that have various benefit programs associated with them, such as discount schemes at hotels and stores.
What about the drawbacks of credit cards
They also exist – and especially for those who are unable to repay the debt.
Thus, when using a credit card, you should make sure that you have enough money in the account to pay what you owe when the bill arrives, whether through savings, wages or the like.
There are also those who use the credit card to give themselves a short-term loan. Eg. by buying cheap airline tickets for the summer holidays as early as February and paying off the full credit card debt when holiday money arrives in June. Then you have to pay interest on your credit card debt for a few months. It may be financially smart, but if one fails to pay down debt when the holiday money arrives, a scary financial journey begins.
Credit cards are suitable for those who are in order in the economy and who control when credit card debt is paid. Here you can apply for a credit card
Consumer loans are a little different
It is a type of unsecured loan, that is, you can take out a loan without having to provide anything in collateral to get the loan. This is the opposite of, for example, mortgages, where the bank pledges to your home and may force you to sell it if you do not repay your mortgage. Since there is no collateral item on the bottom as collateral for the lender to get back their money, the lender assumes higher risk and then the price of the loan goes up. The interest rates on a consumer loan are therefore also higher than they are on a mortgage. On the other hand, you may want to get a consumer loan with a lower interest rate than what you pay when using credit cards. If you need a smaller amount in a short period of time, it might be a trick to use a consumer loan than to use the credit card.
The advantage of consumer loans is that it meets people’s need for money, but where it may not be a mortgage object to lend. Examples here may be people who rent housing rather than own their own home. Some also expect to have a consumer loan for a few months rather than waiting for a purchase of larger capital goods until they have money on account. Maybe you want to turn on sales or a good deal. It is whether you are in a position to buy and sell a car or boat, and where the new car arrives before the old one is sold.
Another benefit of consumer loans is that there may be money that can save you from an acute money shortage. That day the divorce is a fact, or the dental bill reaches new heights. There are endless reasons why people want to take out a consumer loan. The advantage of a consumer loan compared to credit card debt is that a consumer loan has a repayment plan. And remember that it is when a consumer loan runs over an extended period that interest costs become really large. For example, if you borrow $ 100,000 at a nominal interest rate of 16% you have to repay almost $ 110,000 with one year’s repayment period. If you choose to pay down over 5 years, this amount grows to almost $150,000.
The disadvantage of consumer loans is that it is a type of loan with high interest rates, and the type of loan has been met with much criticism because it has become easier to obtain this type of loan, and because a large number of Norwegians without sufficient knowledge of the product have borrowed too much and come into a demanding economic spiral where they are unable to repay. Here you can apply for consumer loans
Who fits the different options for then?
Credit cards are for those who are in control of your finances and who know that you can pay the entire bill when it is due.
A consumer loan is suitable for those who do not have, for example, a home or other assets to pledge, and who have the finances to live with the high cost of borrowing.
What do I recommend? Regardless of whether you choose to use one or both loan types, my basic approach is: Don’t put yourself in a situation where you are spending money you do not have – or know that you will not get.