Credit Cards vs Credit Lines

Comparison between two Popular Credits

In the realm of credit, there is a wide variety of "future income" to tap on for a better lifestyle. This post narrows down to 2 prominent & highly rated credit facilities many borrowers like to consume. In fact, there are some obvious signs that attracts lendees to this marketplace saturated with competitions from different sectors - retail banks are not only the choice these days! And also, acquire education on the distinguishing factors and why some lenders can employ "Loss Leadership" strategy or some borrowers declaring loan loyalty to certain financial institutions. A very exciting topic is to be unfold!

Leverage on Credit Cards a good thing?

The current trend of signing credit cards is an interesting one and case studies should be evident on consumers expenditure. When young adults reach a certain age, one of the common goals is to own at least one credit card that does not belong to student category. So what's the beauty of credit cards which makes borrowers enticed to?

The definition of credit is to leverage on the bank's current operating funds at the expense of repaying on time else subject to interest rates. Since there is no fees to remunerate within a specific time frame, usually 28-30days, it makes credit compelling to indulge in. Another lucrative factor is that owning credit cards provide some forms of prestige and boost self-esteem of an individual.

Based on borrower's average monthly salary, simple method of approximation, he/she may get up to four times credit limits. However, the lendee must not have bad credit ratings in the past as things might get complicated while subjecting to case-by-case approvals. Many a times, credit card firms offer incentives in using their products such as discount perks, signup freebies and many more. If credit cards are used in a prudent manner, such as signing up only for freebies and discounts, then it is the right choice of securing one. Never draw cash using credit cards as the interest rate is seemingly overwhelming at about 24% interest per annum.

Is Credit Line an alternative to credit cards?

A commonly asked question is whether credit lines a direct alternative to credit cards. Firstly, the borrower needs to identify his needs. Is it for buying goods at hypermarts or merely for taking personal loans. If the answer goes to the former, signing up for credit line is obviously a wrong choice.

Why is this scheme so popular when it cannot buy anything? In general, the core usage of such credit is to target market audiences under the loan category. The interest rates for taking up loans, depending on the tenor, are more competitive as compared to drawing cash directly from credit cards known as Overdraft function.

In addition, try issuing checks out to anyone and the process is swift without any hassles. As long as credit is borrowed and returned at the stated timing, no charges will be incurred. That's the beauty of leveraging on credit facilities.

Which one is better for you & me?

In reality, this weightage requires you to seat down with a professional banker and let him analyze your risk profile as well as identifying the types of credit to be utilize. If the borrower is going to use both functions of spending and loaning, the banker may offer to split the credit limits into half for both cards, estimated up to 2X credit limits each. Should the lendee just need either function, the limits will be transferred to the respective cards, free of charge of course.

As you can see, the process isn't hassle-free but significantly reduces time being spent on identifying wants. As long as credits are paid on time, there are fewer issues on loan settlements. In this low interest rate environment, some retail banks or credit lenders shower you with free gifts and even zero percent interest rates for specific loan tenors.