Which type of loan to choose: consumer credit, overdraft account or credit card? Our article describes the main characteristics of each type of loan, their main advantages and some disadvantages.
A consumer loan is a type of loan that you can obtain in a larger amount and for a longer maturity than other types of loans such as overdraft or credit cards. You can apply for a consumer loan by phone or via the Internet without visiting a Bank branch. Even for the need for small expenses, such as the purchase of a smartphone or household appliances, a consumer loan can be provided.
- Advantages: the amount of the loan that can be obtained in a consumer loan is higher and the payment term is longer than in an overdraft and credit cards. To date, the registration of consumer credit is possible for up to 48 months. In addition, interest rates are more acceptable than an overdraft or credit card. While the upper limits of credit card use are determined by the amount of income, this limit is not yet available in consumer loans. This allows borrowers to obtain higher amounts of consumer loans.
- Disadvantages: although consumer credit is most often used for a one-time purchase, it may take longer to repay the loan than for overdraft and credit cards. In addition, the Bank may require collateral or security for the loan. If you need a loan that exceeds the amount limits for consumer loans, the Bank will offer other types of loans on terms that may differ from the original.
Overdraft is a type of crediting of the client’s Bank account, in which the funds are spent from the debit card account in excess of the balance available on the account. The ability to use overdraft depends on your credit rating and the regularity of debit card transactions. You can apply to open an overdraft at the Bank where you have an account.
- Advantages: because the overdraft is linked to your Bank account, you can easily and quickly use it in emergencies. To open an overdraft, it is enough to apply to the Bank only once and use the service from 1 to 2 years. The debit card holder can independently determine the maximum monthly overdraft limit. The cardholder can use the overdraft several times a month without paying off the debt after each use. This type of loan is much easier to pay simply by accumulating the used amount in the account by a certain date.
- Disadvantages: overdraft should not be used in cases where there may be delays in the receipt of funds on the debit card on which the overdraft is opened. Overdraft loans have rather high interest rates, and every day of delay is fraught with fines from the Bank and a downgrade of the credit rating.
A credit card is a card issued by banks for daily expenses. With regular and proper use, the credit card can meet short-term, low-volume and urgent cash needs. You must pay your credit card debt on a regular basis up to the minimum payment amount, which is determined in whole or in part by the debt reflected in your expenses.
- using a credit card eliminates the need for cash. With credit cards that can be used for daily purchases, it’s easier to keep track of personal expenses. In addition, through campaigns organized by banks, you can get benefits such as miles to buy tickets and other bonuses for using a credit card.
- Disadvantages: uncontrolled use of a credit card can cause you material damage. Credit cards have a higher interest rate on borrowed funds. Delay in payments leads to a decrease in your credit rating and fines from the Bank.
In light of all the information provided, you can choose the type of loan that will meet your needs. You can also consolidate all your credit card debts and various loan payments into a single loan. You can make your monthly payments easier by paying one Bank.