When a financing need comes up, many people almost automatically reach for the credit card already in their wallet, without comparing it to the alternative of a personal loan. In most cases, that decision ends up costing considerably more than it appears at first glance.
What a revolving credit card is
A revolving credit card lets you defer payment on your purchases (or draw cash) by repaying the amount in small monthly installments, calculated as a small percentage of the outstanding debt or a low fixed amount. That reduced installment's convenience is precisely what makes the debt drag on for a long time and rack up far more accumulated interest than a loan with higher installments and a fixed term.
The APR difference is enormous
The APR on revolving credit cards is usually well above that of a conventional personal loan, with differences that often exceed 15-20 percentage points. Spain's Supreme Court has voided several revolving credit cards as usurious for having especially high APRs in recent years, which gives an idea of just how disproportionate this cost can become compared with conventional financing.
Why the low installment is the trap
The apparent appeal of a revolving credit card is that the monthly installment is small and barely noticeable in the budget. But that reduced installment pays down very little capital each month, because a large share goes toward paying interest. The result is that the debt can take years to pay off completely, even without making any new charges, generating a total cost far higher than the original purchase.
When a personal loan is the more sensible option
For identified financing needs of a known amount (a renovation, a car, a large unexpected expense), a personal loan with a fixed installment and set term lets you know the exact total cost of the operation from the start, compare the real APR across different lenders, and avoid the risk of dragging the debt out indefinitely.
How to compare properly before deciding
The most common mistake when comparing is looking only at the monthly installment or the nominal interest rate (TIN), ignoring the APR. The APR factors in fees and other associated costs, and it's the only indicator that allows a like-for-like comparison between different financing products, whether personal loans or revolving credit cards.
Compare the real cost of your financing
Our personal loan calculator lets you calculate the monthly installment and the real APR of a loan, so you can compare it with any other financing alternative before deciding.