Credit card loans are less expensive than payday loans, but are still pricey

Back in our parents’ day, when a large purchase was necessary, people got in the car and drove down to their local bank. They would discuss their needs with their banker and the banker would generally offer to provide a personal loan for the money. Granted, in those days people were more likely to actually know their banker, as most people did business with small banks that tended to keep their employees for their entire careers.

Today, things are different. We’re lucky if we know the name of a single teller at our bank and in all likelihood, we have never seen a loan officer, let alone know one by name. And credit cards are ubiquitous; everyone has one. Most people receive a set of checks in the mail with their credit card bill each month, offering to let you borrow cash against your credit line. Often these deals come with great promises of low interest for some period of time. And these days, consumers are more likely to use these checks for their financial needs than they are to talk to a bank. This may be both shortsighted and expensive.

The terms offered with these credit card checks are often enticing; they may offer really low rates or even no rate at all for a few months. The problem is what happens after that. The rates may go up by quite a bit after the grace period expires. Worse, anything you charge to your card in the meantime will be assessed at a higher interest rate and any payments you make will apply to those purchases first, effectively delaying your ability to make payments on the loan amount. While you’re making payments on the higher-interest purchases, you are depleting your grace period. Borrowing by using these promotional checks is a good plan only if you can pay it off quickly and only if you do not have an existing balance or any plans to use the card before your loan is paid off. The last thing you want is a huge, complicated balance, especially since the credit card companies are raising their minimum payments this year.

Another concern is the fact that your credit card company can, and will raise your interest rate if you are late with even a single payment. Worse, they can raise your interest rates any time for any reason at all!

It may still be worthwhile to walk down to the bank and introduce yourself to a loan officer if you need short-term funds for a vacation or some other fairly expensive purchase. The interest rate that you receive from a bank will probably not exceed that of a credit card loan, but you will have a specific amount of time to pay it back and regular monthly payments. You will not have the complication of other purchases being added to the balance at different interest rates that can change at any time.

Sometimes, there are advantages to doing things the old-fashioned way. It might be worth your while to look into it.

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