Personal loans vs credit cards: what is cheaper to borrow

With inflation estimated to be above double digits for August and a very high projection for September, it is that Argentine families juggle to meet the expenses per month. And, despite the fact that going into debt is never a good option, in this note we will analyze what rates the market offers according to the different financial instruments available.

Credit cards

Let’s look at credit cards first. After the STEP, the Central Bank of the Central Republic (BCRA) took a series of measures that they affected the differential rate for credit cards and personal loans, as well as fixed terms.

In this type of financing, the Annual Nominal Rate (TNA) was 86% and became 107%, after increasing by 21%. In that framework, the Effective Monthly Cost became 8.79% and the Effective Annual Rate (TEA) of 178.9%. In this case it is important to keep this last number since to that annual percentage, the maintenance expenses of the cards will have to be added.

“Depending on the options you have maybe you should get an A12 (if available) before the card. But you also have to keep in mind that the card usually charges maintenance and it is becoming a considerable cost in some cases. We may have options with a financial cost below inflation, but it will depend on each case to have income adjusted at a higher rate,” he told Ámbito, Andrés Reschini from F2 Financial Solutions.

Personal loans

Now let’s see what happens with personal loans. Although the TNA is 179%, the Annual Effective Total Financial Cost (CFTEA) rises a lot. This acronym is the one that will tell us the final or real cost of a loan, credit or the financing of a credit card. It is the main variable to take into account, since it is the best indicator of the global expense that will have to be faced.

In the case of Galicia BankFor example, they offer loans of up to $7,200,000, immediate accreditation to be repaid in 72 installments but with a CFTEA (with VAT) of 632.41%. At Banco Santander, the CFTEA for personal loans is 451.95%.

And what about digital wallets? Let’s analyze, for example oulaaccording to its website, the Total Financial Cost varies from a minimum of 502.90% to a maximum of 915.17%.

As to financing costs for credit card payments of Market Paymentfor Visa, Mastercard, Cabal, Cordial, Cordobesa, Diners, Argencard, Nativa, Mercado Pago, Banco Patagonia, the CFT for 12 months rises to 460% and in the case of Orange X and American Express in 6 installments, 595%.

Getting into debt, a headache

For Andrés Reschini, “the lowest rate is always advisable, that’s obvious” but it must be taken into account that “next month you will have the flow to serve you. It seems obvious, but if every month I spend more than I earn and more debt accumulates, even though it is financed at a negative rate, at some point it may be difficult to pay“, specific.

In this regard, he analyzed that it is one thing to borrow to acquire assets and another to finance current expenses, “There I would worry about the structure of expenses more than the way they are financed.”