Personal loan or credit cards?
- Author: Iohan Colarusso
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You are looking to purchase furniture from a Fly store with the Myone card (in french), DIY equipment with the Jumbo card (in french) or restock your wardrobe with the Manor card (in french)?
But in the end, wouldn’t it be better to calculate the amount of all of your expenses and submit a loan application with a broker or bank instead of making purchases using a credit card?
At what point does it become advantageous to pay with a credit card or with money received from a personal loan? What are the advantages and disadvantages of each of these solutions?
Amount borrowed
With a credit card, there is no minimum amount and the maximum ceiling is for most citizens 10,000 CHF per credit card, with the exception of those with very good financial situations.
With regard to a personal loan, the amounts lent generally start at 5,000 CHF (in some cases 3,000 CHF) and reach up to 250,000 CHF. These ranges vary from one banking institution to the next.
Using the amount
With a credit card you have full flexibility as you can spend money at any time until you reach the credit limit. Repayments made on your credit purchases then entitle you to begin spending money on your card again.
However, with a personal loan you can only begin spending the money when the latter has been paid into your account by the banking institution. Repayments do not extend your line of credit. To do this, you need to resubmit a loan application.
Interest rate
The interest rates applied on credit cards are very high, approaching approximately 15%, with the exception of free COOP and MIGROS cards, which are both at 9.9%.
Rates for personal loans begin at 5.9% with the Migros Bank (in french).
Repayment period
With the credit card, the repayment period can be unlimited.
With a personal loan, the repayment period is limited. It is at least 6 months and can stretch as far as 10 years, for example with Eny Finance.
Costs
In addition to the interest rates, credit cards also charge costs such as an annual subscription fee for some cards, as well as fees connected to ATM withdrawals or payment fees.
With consumer credit, you only pay the monthly repayment including the interest rate. Consequently, there are no additional fees!
Risks of over-indebtedness
Personal loans and credit cards each play a role in the over-indebtedness of Swiss households (1 in 10) and Swiss youths (1 in 4).
However the problem is trickier with credit cards: an individual can get into the habit of paying small amounts each month and watching them slowly rise with multiple credit cards, without realising that they are getting out of their depth.
Debt consolidation
Everyone can have multiple credit cards, but as the debt grows, interest rates remain very high and management becomes difficult.
You can consolidate your debt with a finance company, which consists in:
- grouping together all of your monthly repayments into a single payment
- reducing the total monthly repayment amount thanks to a lower interest rate
Conclusion
Credit cards are perfectly suited to small expenses. They are more flexible regarding use of the money borrowed and its repayment. However, they are more expensive and the risks of over-indebtedness are more deceptive.
As a general rule, a personal loan is recommended for large expenses. For example, if you are moving into a new apartment (new living room, electric household appliances and multimedia, moving services, etc.) or if you are expecting a baby (fitting out a nursery, clothing, etc.), calculate the total amount of your expenses and if they reach or exceed 5,000 CHF, we strongly suggest taking out a personal loan in order to reduce interest costs.
Finally, if you have multiple credit cards and your cumulated debts become significant, submit a debt consolidation loan application to reduce the interest rate and simplify your life with a single monthly repayment!
- Categories: Consumer credit