Why borrowing money with a credit card is expensive

Borrow the same amount through a personal loan 

Borrow the same amount through a personal loan 

If you borrow money with a credit card, you pay a hefty interest for it. In the Netherlands this is usually 14%, the highest rate that is legally permitted.

Would you borrow the same amount through a personal loan or revolving credit, then you usually do not get that percentage. And anyone who wants to borrow money through a mortgage for a big home job is now well under 2% – if that loan is repaid within 10 years.

However, if you buy a new TV with your credit card because you want to spread the purchase amount over several months, you can always count on no less than 14% interest on an annual basis.

Why is it so towering? And why is there such a big difference? That is in the following.

No insurance for the lender

No insurance for the lender

Every lender takes into account the chance that you will not fully repay the loan. For example, because you do not always have enough money in your account. Or because you are suddenly confronted with other costs. He bases his interest rate on this so-called risk .

With a mortgage or a loan for the purchase of a car, for example, there are always things that the bank can claim and sell if you do not repay in full. Your house or your car is the collateral that gives the money provider certainty that he will get his money back.

A loan with a credit card does not immediately have such collateral. The credit card company does not ask what you spend the money on and should go to a lot more effort to see the loan amount again if you do not cross the bridge.

Withdraw money with your credit card

Withdraw money with your credit card

For example, he must call in a bailiff, who can then seize your household effects. There are a lot of costs involved.

A bank or financing company that provides a loan usually asks what exactly you are borrowing for. But if you withdraw money with your credit card to gamble, the credit card company does not know anything about it.

The company therefore has no insurance on what it advances to you. And the more people they lend money to, the greater the chance that there will be someone in between who doesn’t pay back.

That makes borrowing with a credit card more expensive.

Every disadvantage has it’s advantage

Every disadvantage has it

This high lending rate also has advantages. The credit card company builds a solid buffer with it and can therefore ultimately give more guarantees to all users.

For example, she can repay you the cash if you are disadvantaged by a store that does not deliver your order properly, or even not at all. Or guarantee the damage when your credit card comes into the hands of a crook.