Loans Vs. Credit Cards (Major Banks)

[SAR1954]

I have a question. Why is it easier (well certainly not always easy but easier) to get a credit card from a Major Bank, such as U.S. Bank for amounts ranging from 1K-5K or higher, but it’s made harder to get a cash loan? Are they not taking the same risk either way?

[patrick12]

With a credit card you have the flexibility of either paying the total credit line off in full, or making atleast the minimum monthly payment where with a "Fixed Loan" or often referred to as an intallment loan is a fixed payment and you must be able to demonstrate in one way or another that you can handle that type of payment account, a mortgage or car loan are great examples of a fixed type installment loan. Me being a finance manager can tell you first hand, if you havent demonstrated in one form or another that you can take on an installment loan its very hard to get approved for that type of account! And with unsecured loans its even more risky! I can understand why you would think credit card loans shouldnt be treated any different, but in the banking industry there are uncertain risks involved with each product they are offering their customers, if they feel you havent demonstated any type of payment history on any type of loan account you are applying for, that might be the reason for the denial, now if your going to secure a loan with some sort of collaterial, being a vehicle title, a CD, or even a shared savings, this would allow you to establish an installment account and give future lenders more of an idea on how you are going to handle your new loan with their institution.

[SAR1954]

Thanks patrick12:


I have not looked at in the point of view, that a loan requires a higher fixed payment vs. a credit card where the minimum is typically lower and if you pay the credit card down your required monthly minimum can go down, unlike a personal loan with the fixed payment. I can see where banks would want to see you credit stronger for this type of product. I do have a mortgage, and 2 car loans in my name (all of which I have had 2 years or less), I am hoping over the next few years to regain strong credit and rebuild to get to where I want to be. I found your post to be insightful and helpful, thank you.

[Roughdraft]

The bank you're using might play a very important role in your ability to get approved. For example, one of the first types of loans I got was a personal loan for $500 from my credit union. I can't remember what I bought with it, but I paid it in six months just to help build credit. The amount was small, and I had good employment history, so it seemed to be enough for that amount. Later, when my car broke down, I borrowed $1000 for 6 months. I paid it sooner when I sold the car. Now, years later I applied for a personal loan from Bank of America and was declined. I had very good credit, solid work history and a checking account with them, but they said no. So, it might be the institution you are using is not partial to offering that particular product.

There is essentially less risk with a credit card being that they might offer you say, a $5,000 credit limit, but you won't necessarily use the entire amount. Where with a loan, they are fronting you the entire amount up front. Should you default, they lose more on the loan and with a credit card you might have only charged $2,000 on, but couldn't pay back. Also, the interest collected on the credit card will generate more income for the bank, then the installment loan would, over the same period of time, so they make more money that way. Last, cash is the most liquid asset available. You can do anything with it, invest it, spend it, save it. Where with a credit card, you will probably use it to purchase goods. You can take the $5000 loan and buy 400 shares of Ford stock, or something like that, where you might lose it, then one would be less likely to pay back money one lost, either in an investment, gamble or something like that, so that if you take some risk with the money, may not have enough to pay it back.

If you were applying for one, and not getting approved, try another bank, or maybe try asking for a smaller amount. Also, they will typically ask why you need the money, so if they feel you may, in the near future be under some financial distress, (i.e., using it to pay medical bills, or pay off credit cards) they may not approve you, if they feel you don't have a good reason. If you were using it just to buy a bigger TV, they might offer you a credit card with 0% interest for say, six months (Which are great alternatives, by the way.) See, they can't see what you are going to do with the cash, as with a credit card there is more limitation and, well surveillance. And Another thing is banks don't want you to pay back their loans with their cash, so perhaps they do it to prevent that.

[SAR1954]

I appreciate the great feedback that I am getting!

[ruslanyarosh]

really depends what type of loan. i have a revolving loan with AlaskaFCU. $5000 and a credit card with them for $7000. my loan apr is 3 points lower. and i can transfer whatever amount i need into my acct.
do your research. i think loan will be cheaper but is harder to obtain.