There are many types of credit products on the credit market, and the type of loans available in the banks offers almost any type of credit. The two most common types of free loans are personal payday loans and credit cards. Many people tend to confuse these two products, although, although they have similar features, they are two very different and conditional credit products. In our article, we will show you the difference between the two constructions and if you are thinking about requesting one or the other, we will help you with your choice.
Loans for free use
Loans for free use are credit products that the debtor may use for any purpose and may use the loan amount arbitrarily. This group includes both personal payday loans and credit cards. There are mortgage-based free-use loans, but most are backed by such loans, such as personal payday loans and credit cards. Therefore, there is no significant difference in the method and conditions of the claim between the credit card and the personal payday loan application .
In either case, it is a more risky type of loan for the bank, and therefore the interest rates on the loans are higher – but, as we will immediately mention, there are significant differences between the interest rates.
It is important that, as in the case of a personal payday loan or any loan application, the bank checks the status of the claimant when applying for a credit card. Thus, a person with overdue debts cannot receive a credit card.
What is the difference between a personal payday loan and a credit card?
The personal payday loan and the credit card are therefore designed for different customer needs. A personal payday loan is a lump sum that a customer receives and can then be spent arbitrarily. In contrast, the credit card provides the customer with a long-term credit line to cover his daily purchases and expenses. While a personal payday loan is used to pay the amount available to the customer, the credit card has a credit account next to the card and can carry out transactions with the card at its discretion.
In addition to the use, there is a significant difference in the rules for repayment of the amount used. In the case of a personal payday loan, the disbursement starts after the disbursement, which must be executed on a regular basis in smaller amounts, together with the specified interest. In contrast, money spent on credit cards is generally interest-free for 45 days if the amount used is fully repaid during this period.
That is, with a credit card you can use the money of the bank for free temporarily, but in the case of a personal payday loan you receive the requested amount in exchange for interest. The bank also encourages the use of cards and offers a wide range of preferential terms, cash back to purchases.
When to choose a personal payday loan?
A personal payday loan can be a good choice if you are
- a one time purchase of a product or service
- you need a small to medium loan, so that’s why
- take a higher interest rate, and
- the loan would be repaid in smaller amounts on a regular basis during the term, and this expense will fit into your budget.
If you need a medium-term loan of up to HUF 1-2 million for a specific release, you will need to apply for a personal payday loan. This should then be paid regularly (usually monthly) at specified, small amounts during the chosen term.
And when to choose a credit card?
You should use a credit card then if
- would have a credit line for everyday consumption,
- You would use at least a portion of your credit line from month to month or would like a security opportunity for higher spending on a month,
- You are guaranteed to be able to reimburse your credit card total amount of income every month, and
- You are an active card user
- can use preferential terms.
Be sure to pay back the full amount of your credit line by the end of the given cycle by the deadline. If a small part is missed, you will have to pay a very high interest on the money you spend.
So which is the better design?
This question cannot be answered because it depends on who needs what. You should always make a personalized decision about whether to hire a personal payday loan or to apply for a credit card in a given situation. Certainly, with reasonable use, a credit card is a cheaper option, but only if the user can fully repay every month. There is no such option for a personal payday loan, where interest is charged on the loan from disbursement.
It is worth noting that credit cards and interest on personal payday loans are the highest among credit products, and the interest on credit cards is higher than that on personal payday loans. Otherwise, the law allows lenders to do so, as it is determined in Hungary how much the maximum interest rate that can be claimed on a loan can be, and this rate is 15% higher for credit cards. But as we have written, this interest of up to 35-40% will only be paid if someone delays repayment late.