Credit Card vs. the Bank Loan: Which is Better?
It's a common problem of our times. You, a client or someone you know wants to buy something, but may not have the cash readily available to make the purchase. What would you do, or advise your client to do?
Experts say that the annual percentage rate (APR) probably would be lower for a bank loan, even an unsecured loan, than most credit card rates. Compare the two. A credit card with a 19 percent interest rate versus a bank loan with a 15 percent rate would yield a savings of $70 over a three-year period of paying back a $1,000 loan. Not a great deal of money over a three-year period, although the savings can escalate when the amount of the loan increases.
If you really want to build up a credit history, it may be more advantageous to use a credit card to make the purchase. Make monthly payments on a timely basis and you'll build a credit history that will help you with financing in the future. Banks and other lenders who issue larger loans typically like to see the use of a major credit card because it is a good, historical measurement of your ability to follow through on payment obligations.
Be careful, though. Some lenders may look less favorably on borrowers who have more than a few credit cards.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.