There are two ways to borrow money at a bank: taking a loan or getting a credit card. These two types are similar in that they allow borrowers to get money at the bank to pay for travelling, appliances or repairs. But there’s actually a significant difference between a loan and a credit card. If you need a loan, you’ll have to turn to a microfinance organisation. First, let’s understand the differences between a consumer loan and a credit card.

Calculation of interest

If we talk about the consumer credit, interest is calculated from the first day of the agreement and applies to the entire amount of the debt. Even if you do not spend money, you will have to make the first payment within a month. The part of this payment will go to repay the accrued interest. With credit cards, interest is calculated after the first transaction and applies only to the amount owed.

In addition, consumer loans charge interest at a fixed rate regardless of what the credit money is spent on. A credit card may have several interest rates at the same time: one rate for non-cash purchases and another for cash withdrawals and transfers, usually it is higher,

Interest rates

In general, interest rates on consumer loans are lower than on credit cards. 

Interest-free period

The main difference between credit cards and consumer loans is the availability of an interest-free period. The interest is charged on the outstanding balance. Depending on the bank and the card, the grace period is usually about 50-60 days. Sometimes even longer than that. Note that this usually applies to non-cash purchases, but not always to transfers and cash withdrawals.

Payment process

A consumer loan must be repaid strictly according to the schedule: equal monthly instalments. In addition the debt can be repaid in full or in part early without penalties and commissions. Sometimes it is necessary to contact the bank and find out the terms of early repayment.

It is best to repay the balance of the credit card during the grace period to avoid paying interest.

What do I need to know about loans?

A loan is the best way to solve short-term financial problems. People borrow money at microfinance organisations because they don’t have to wait a long period for approval. Most microfinance organisations review an application within 15 minutes and give a response within the same day (sometimes even within an hour of the application being reviewed).

A potential applicant does not need to prepare a large pack of documents to get money. Just present your passport and that’s it. Microfinance organisations also do not assess your income, do not require guarantors and do not ask for collateral.

To apply for a loan, you don’t have to go to the organisation’s office and stand in a queue. Just fill in the online application form with a minimum of personal information, choose the loan amount and term. In some cases, you won’t be asked to verify your income, the purpose of the loan or your credit history.

What to choose?

It all depends on the term and purpose for which you need to apply for the loan.

A credit card is right for you if:

• You often need borrowed resources in non-cash form.
• You use borrowed money primarily to pay for purchases.
• You can take advantage of an interest-free period and use your credit card without interest.
• You need a convenient tool for shopping abroad or at foreign online shops.
• You need a source of borrowed money as a reserve for emergencies.

You should use a consumer loan if:

• You need to make a large purchase that requires a large amount of money.
• You will not be able to repay the debt quickly enough, so you need a longer term.

In other situations, a microloan will be more favourable:

• If you need borrowed resources infrequently and in small amounts.
• If you need a certain amount of money for urgent purposes here and now.
• If banks refuse for some reason, for example, because of problems with your credit history.
• If you need cash, it is easier to get it from a microfinance organisation than getting a credit card.
• If access to banking services in your city is difficult, for example, because there are not enough branches.