Are bank loans analogous to credit card use?

yep

well a bank loan is more an investment than a credit card purchase but there are obvious similarities

credit wrote:

We all know it's dangerous to use credit cards, although few people actually heed the warnings of common sense. Is taking out bank loans similar? I've always been extremely weary of getting into any kind of debt.

It's not a matter of getting into debt, it's a matter of what you are doing with the money that gets you into debt.

Taking out a loan to buy a house isn't necessarily a bad thing. Neither is taking out a loan to start a business, pay for college, etc. Debt - in and of itself - isn't a thing to be wary of or avoid like the plague.

Ditto with credit cards - they can be useful, but a lot of people are stupid with them, buying things they don't need or can't really afford. Ditto with other types of debt.

What matters is not that you have debt, but how your debt is leveraged.

Credit cards are shit. There is no such thing as responsible credit card use- at best you're still enabling the other 99% of credit card users to screw up their lives.

credit wrote:

We all know it's dangerous to use credit cards, although few people actually heed the warnings of common sense. Is taking out bank loans similar? I've always been extremely weary of getting into any kind of debt.

Yes it's the same thing. Banks are basically loaning out 11 times as much as deposits, so they are loaning you YOUR money, at no cost to them. If you give them a 10 percent usury, that's 110 percent, again of YOUR money and not their money.

But they probably loan out much more than 11 times the deposits. That's another reason that bank runs are so devastating for them. They don't HAVE everyone's money who has entrusted it to them.

If you can't afford something, don't get it.

Why Credit Cards Are Good:

1. You can make money/get cool stuff with rewards programs

2. Safer to carry than cash

3. Accepted online

4. Build credit for when you need it (house, business, etc..)

I've always wondered, if the credit card companies knew for sure that you would always pay your balance each month and never pay any fees or interest, would they still want you as a customer? Do they make enough just with what they charge merchants to make it worth their while?

dukerdog wrote:

I've always wondered, if the credit card companies knew for sure that you would always pay your balance each month and never pay any fees or interest, would they still want you as a customer? Do they make enough just with what they charge merchants to make it worth their while?

Of course they would. The merchant fees computed to an annualized count adds up to a lot. Remember AE used to only work that way, pay your bill at the end of the month or you're late.

Carrying a balance exposes the CC issuer to repayment risk.

Hey kid, substitute "marijuana" for "credit card" below.

marijuologist wrote:

Credit cards are shit. There is no such thing as responsible credit card use- at best you're still enabling the other 99% of credit card users to screw up their lives.

Yes yes yes wrote:

Remember AE used to only work that way, pay your bill at the end of the month or you're late.

But when AE worked that way they charged merchants a good bit more than Mastercard or Visa. I don't know if they still do.

Bank loans are generally secured against something. If you default on the payment they can then repossess it. As a result, such loans are also generally much lower interest rates than credit cards.

Further, banks cannot generally raise the interest rate you are paying on a loan as they see fit (with notable exceptions such as ARMs causing the credit crunch now). But with credit cards, they have carte blance to raise your rate whenever they feel like it, per the agreement.

No one likes to be in debt but credit card debt is an anchor that ties you down in life. Bank loan debt is usually a better thing.

The payment processers (Visa, Mastercard, etc) make the fees on transactions, the banks (WaMu, Bank of America, etc) make money on annual fees and interest on your balance. So the answer is no, if you pay your balance every month, the banks don't like you as a customer.

AmEx is a payment processer as well as an issuing bank so they could have the charge card model of payment in full each month. Now that they make money off interest on some of their cards you would think they could lower the amount they charge merchants per transaction to remain competitive with Visa and Mastercard but I don't know if they have.

marijuologist wrote:

Credit cards are shit. There is no such thing as responsible credit card use- at best you're still enabling the other 99% of credit card users to screw up their lives.

Ok why don't we blame everyone else for our problems...waahhhhhhhh...

Seriously if I am responsible with my credit card and pay off the balance each month that is responsible credit card use. And as far as ME enabling the other 99% to screw up THEIR OWN lives, what am I doing? Free will, it is a beautiful thing.

I'll bet you blame your parents or the girl who dumped you on your weed use. Start blaming yourself for your mistakes and things will be a lot smoother.

Borrow to invest, not to consume.

Business, education, and housing are all investments. Even in today's market, housing is still a good investment, because it pays huge dividends (if it's your house, the dividends are in the form of a place to live). Just don't expect a lot of capital gains at the moment.

Plasma TVs are not investments.

Cars MIGHT be an investment, but only if you don't have reliable transportation, or if you don't have a vehicle that serves your needs (think minivans and pickup trucks, etc). If you upgrade a reliable car to a more luxurious car, then you are consuming, not investing.

credit card debt is unsecured debt

bank loads are generally loans secured by the items the loan was used to acquire/finance them

dukerdog wrote:

But when AE worked that way they charged merchants a good bit more than Mastercard or Visa. I don't know if they still do.

Your source?

Willy Wonka wrote:

Your source?

AMEX has always charged more than Visa, MC, and Discover. The latter 3 are all around 1.5-2%, AMEX, is closer to 3%. That is based off our merchant account. Just the cost of doing business though I suppose.

Merchant fees are 3-6% across all card issuers. Only very large retailers have fees less than 3%.

not necessarily meant for the op - but, beware of the bank offering you a "personal loan". many are nothing more than the bank offering you a low "loan rate" for 6 months, then shafting you just like a credit card. basically, "buyer beware" - read the fine print, re-read the fine print, then show the fine print to your sig other and ask the sig other to reread.

you should be especially leery of the ones that will offer you a $10k loan ... or fixed amount. Sometimes all this is, is a credit card disguised as a loan ... but ... they basically give you the "credit card" that is already maxed out and all you have to do is make the full payments. You get the cash up front and can spend it however you like and make the low monthly payment ... but ... the problem is that you get the full payment up front - as compared to say a credit card, where you might buy a few things that add up to $2K, then gradually paying it off. If you are the bank - giving you cash in exchange for an essentially maxed out credit card is a Great Idea!