What is the credit card and what does it do?
Even though the term is part of the name, the credit card is less a loan than a form of payment. However, the way in which credit cards are used differs from country to country. In the United States, for example, it is used much more as an alternative to credit than in Switzerland.
In contrast to the checking card, all payments are initially collected in the credit card account when paying with a credit card. The amount owed is then repaid. The customer can usually determine how the repayment will be made.
Partial monthly repayments from USD 50 are often already possible. This enables the holder to repay amounts over a longer period, similar to classic loan repayments.
Once activated, credit cards can be used immediately. The credit line granted is available without waiting.
How high this credit limit, the so-called credit limit, depends on several factors. The main criterion is the applicant’s creditworthiness. Those who have a high monthly income and a high payment morale will receive a larger amount of money. As a rule, this ranges between USD 2,000 and USD 5,000.
Anyone who reliably settles their credit card statements over a longer period of time also has a good chance of increasing the credit limit. Last but not least, the credit line can be “artificially” increased by deposits into the clearing account, by exactly the amount of the deposit.
However, the advantages mentioned are offset by some disadvantages. This applies in particular to the high debit interest rates. These fall due, for example, if the credit card is overdrawn or the account used for the payment is insufficient. The interest can then be up to 12 percent.
In order not to fall into this “interest trap”, a sufficient degree of self-control is necessary. If more than one credit card is used, you quickly lose track of the outstanding loan amounts. In the event of uncontrolled credit card use, there is a rapid risk of indebtedness, which in the worst case can lead to personal insolvency.
What are personal loans used for?
Personal loans serve a purpose other than credit cards. The focus is mainly on the financing of larger planned acquisitions, such as the purchase of a property or a car. Accordingly, personal loans are usually much larger loan amounts between USD 5,000 and USD 100,000.
For this reason, personal loans offer significantly cheaper interest rates compared to credit cards. In Switzerland, loan interest is currently possible from 3.5 percent and can be up to 10 percent.
A passed credit check is a prerequisite for receiving a personal loan. This assesses the applicant’s creditworthiness and creditworthiness. Depending on the result of the credit check, the credit terms for the respective applicant result. In addition to the maximum loan amount, this primarily includes the amount of the loan interest.
If you are directly interested in liquidity, private loans are not suitable for you. Even though credit checks can now be made in a significantly shorter time thanks to automated checking procedures, there are still a few days between the application for a loan and the granting of credit. In addition, the consumer credit law, under which private loans fall, requires a 14-day waiting period between the granting and payment of the loan amount.
Personal loan or credit card – what should you choose?
Which type of credit makes more sense can only be assessed on the basis of the individual case. Due to the tendency towards higher costs combined with the risk of losing track of expenses, the credit card is the better choice, especially for small amounts that can be repaid in the short term.
For larger amounts that are repaid over a long period of time, private loans are more suitable due to the comparatively low credit costs. If the accrued credit card debts are already very high, it may even make sense to pay them by taking out a personal loan.
Regardless of the type of loan, it should always be checked whether the purchase can really be financed. In particular, consumer goods such as travel or the like should not be financed through a loan.