topic Re: Why do people choose Credit Cards over personal loans in General Credit Topics

Why do people choose Credit Cards over personal loans

CreditGuy03 — Tue, 26 Jun 2018 16:49:00 GMT

Credit Cards don't seem like smart choices and ideas.

If you use them you are penalized until you pay it down. They have high interest rates 24% I have seen. They can close you out at anytime without notice and you are stuck. They really affect your credit score profile more than anything other than lates and collections.

So why do people get them like they are gold?

A personal loan you can pay for what you want. It is billed as an installment on your credit and doesn't affect your profile as much as a credit card. You can purchase what you want and not be penalized for using the max of the loan. At the end of the day they both need to be paid off with use. Why not use the one that doesn't have such a negative impact?

Can someone explain this logic? Why don't people seek more personal loans rather than credit cards

Re: Why do people choose Credit Cards over personal loans

dynamicvb — Tue, 26 Jun 2018 17:01:18 GMT

I'm sure the main reason is that everyone is trapped by the FICO gods and the gods say you must have a mix of credit with revolving credit being one of them or you get dinged. I don't ever plan on carrying a balance although I understand why some people do have balances if they have some sweet 0% interest deal. Personally, I don't really like cards and will never be one of those who chase them around. I will get several and build up a decent CL, just to appease the gods, but barring any sort of emergency, I never plan on carrying a balance on any card again.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Tue, 26 Jun 2018 18:51:15 GMT

Hello CreditGuy! I notice that you have ten open credit cards yourself. So I am guessing that you must find credit cards useful and helpful in all kinds of ways that personal loans are not. (E.g. when I want to buy a gallon of milk or a tank of gas, Kroger or Shell don't accept personal loans but do accept cards.) I use my credit cards all the time and I never pay any interest on them.

As far as a strategy for paying for a big purchase over several months (in the same way you use a loan) credit cards can be the best choice if you are being given a 0% offer. (And in addition the big purchase could count as meeting the minimum spending requirement and get you a big signup bonus.)

Credit cards are an easy way to improve your score -- getting 4-5 cards with no annual fee is pretty easy and FICO really likes seeing those. FICO 8 also likes seeing one open loan but doesn't really give you extra scoring points for multiple loans.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Tue, 26 Jun 2018 17:14:51 GMT

Credit cards provide a reusable line of credit. If you applied for a personal loan every time you needed to make a $500 purchase you would get an inquiry for each application and your score would drop for your Average Age of Accounts being lowered with each new loan. Credit cards cause a small dip to score but recovers and even improves score after a few months. There is never a need to reapply for that line of credit. Credit cards add to your credit mix which improves scores and the higher your credit line the more usable credit you will have as you wont exceed certain utilization percentages which will keep your score from taking a small dip. Many CC offer 12 months 0% intro APR where as personal loans will require you to pay interest starting with your first payment. Not to mention the sign up bonus that many CC offer such as spend $500 get $150 statement credit and cash back options. I dont know of any personal loans giving you back money you took out or rewarding you for using the money. There are many benefits these are just a few and I'm sure many others here will chime in with more that I have missed.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Tue, 26 Jun 2018 18:31:21 GMT

Credit cards are reusable lines of credit where personal loans are not. Credit cards offer flexibility and ease of use that personal loans cannot. Balance transfers, 0% interest, and rewards/points are common with credit cards and I've never seen a personal loan offer such perks. These two types of credit/loans shouldn't really be compared unless you're referring to much larger purchases that may take time to pay off rather than everyday purchases.

Re: Why do people choose Credit Cards over personal loans

SouthJamaica — Tue, 26 Jun 2018 21:48:30 GMT

@CreditGuy03 wrote:
Credit Cards don't seem like smart choices and ideas.

If you use them you are penalized until you pay it down. They have high interest rates 24% I have seen. They can close you out at anytime without notice and you are stuck. They really affect your credit score profile more than anything other than lates and collections.

So why do people get them like they are gold?

A personal loan you can pay for what you want. It is billed as an installment on your credit and doesn't affect your profile as much as a credit card. You can purchase what you want and not be penalized for using the max of the loan. At the end of the day they both need to be paid off with use. Why not use the one that doesn't have such a negative impact?

Can someone explain this logic? Why don't people seek more personal loans rather than credit cards

Your generalizations are not correct.

1. Some credit cards, especially with credit unions, have pretty low interest. I have one that has a 6.49% interest rate, and some others that are below 10%. And they do not have cash advance fees or balance transfer fees.

2. A loan may have a bigger effect on your credit profile, or a smaller effect on your profile. It depends on (a) the nature and content of the loan, and (b) what is already in your profile.

3. I don't understand what you mean when you say with personal loans you can purchase what you want and not be penalized for using the maximum.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Wed, 27 Jun 2018 04:28:16 GMT

@CreditGuy03Why not use the one that doesn't have such a negative impact?

Can someone explain this logic? Why don't people seek more personal loans rather than credit cards

If used properly, credit cards will not only have zero negative impact on a credit profile, but actually help it. Outside of credit profile/score, credit cards can bring one rewards, something loans can't accomplish.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Wed, 27 Jun 2018 13:57:24 GMT

I'm not spending money I don't have (though sometimes I do like to delay spending that money as long as possible)

You can float a purchase on a credit card for nearly two months interest free if you time it right. (Make it the first day of the new statement cycle. It'll be 30 days until the statement cuts, then you have about 25 days until the due date.)

I needed $500 in dental work and a $500 car repair a couple of weeks ago. Rather than see my cash balances instantly drop by $1000, I made the purchases at the beginning of a new statement and now they won't be due until August 4th. Time to adjust my spending habits knowing that bill is coming payable soon.

As others mentioned, credit card rewards can major if you work them right. I'm averaging about $1500/year on them.

Back the OP's original question, I don't think people consciously choose credit cards over personal loans moreso than the credit cards are just in their wallet, they spend on them all the time not realizing they actually can't pay for what they're buying and the personal loan becomes a bail out which 9 times out of 10 solves nothing as they continue the credit card habits that got them there in the first place. I'm a big believer that personal loans generally don't help anyone. (there are of course a few exceptions. reiterate: FEW)

Re: Why do people choose Credit Cards over personal loans

AverageJoesCredit — Thu, 28 Jun 2018 16:08:59 GMT

Not everyone can qualify for a personal loan or get one with good terms.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Sat, 30 Jun 2018 17:53:58 GMT

I'm curious how a CR would look with only Personal Loans reporting? 20 Loans versus 20 CC would surey impact your score somehow.

Plus the size of the loan you would need is an unkown factor for yearly spending, compared to using a CC. Who's gonna apply for loans every 6-12 months? And as others have mentioned, they have no rewards structure like CC.

They both have their uses for sure, but one being better over another is subjective.

Re: Why do people choose Credit Cards over personal loans

Anonymous — Sat, 30 Jun 2018 18:19:59 GMT

@Anonymous wrote:
I'm curious how a CR would look with only Personal Loans reporting? 20 Loans versus 20 CC would surey impact your score somehow.

A credit report with 20 loans but no revolving accounts would be worse for you than one with 20 cards and no installment accounts. That's true for a number of reasons. It's much harder to build a high AAoA with only loans, whereas a credit card can be kept open forever (continuing to age) even if it often has a zero balance. And a pure credit card profile could get all the scoring points from having:

* Many open accounts with a zero balance

* At least one revolving account with a positive balance

* A total revolving utilization in the 1-8% range

whereas a pure loan profile would be denied all those points.

The good news of course is that nobody has to choose between all revolving or all installment. Opening a few no-annual-fee major cards is easy to do and costs you nothing in interest.

Re: Why do people choose Credit Cards over personal loans

sarge12 — Sat, 30 Jun 2018 18:39:45 GMT

@CreditGuy03 wrote:
Credit Cards don't seem like smart choices and ideas.

If you use them you are penalized until you pay it down. They have high interest rates 24% I have seen. They can close you out at anytime without notice and you are stuck. They really affect your credit score profile more than anything other than lates and collections.

So why do people get them like they are gold?

A personal loan you can pay for what you want. It is billed as an installment on your credit and doesn't affect your profile as much as a credit card. You can purchase what you want and not be penalized for using the max of the loan. At the end of the day they both need to be paid off with use. Why not use the one that doesn't have such a negative impact?

Can someone explain this logic? Why don't people seek more personal loans rather than credit cards

These two different forms of credit should be used differently. Installment loans should be obtained with lower interest for a major purchase like a house or car. Credit cards should be used mainly for convenience and rewards, and if used properly the interest rate on the card should be irrelevant, because you should always PIF. With SUB, and more enticing rewards I have amassed about 20 credit cards. Most are rarely used though after extracting the 200 dollar SUB bribe from them. Credit cards always make me money...every single one of them. Personal loans do not. If credit cards are not profitable for you, you are using them wrong. I make 500-1000 dollars off of cards every year. Many here make much more.