What are corporate prepaid cards
admin / June 29, 2022
The use of credit cards, theoretically, is very specific, they allow payment on credit, deferred payment, but they would also allow the disposal of cash on credit. However, the latter is perhaps the most controversial and least advisable option for a credit card.
Unfortunately, especially in the crisis years, both in the recent past and even during 2020 and so far in 2021 against the backdrop of the pandemic, the use of credit cards as a source of cash has grown markedly.
However, this use is not highly recommended as we will see throughout the article.
The first and most important answer is, or should be the most obvious: interest.
Among the different financing options available to a user, using a credit card to borrow money is probably one of the most expensive. The average interest rates of credit cards for this purpose are much higher than the average interest rates of any personal loan or other financing models, both among those offered by banks and alternative financing.
Therefore, the interest to make the product radically more expensive, making a loan, which would be relatively cheaper in another format (personal loan, salary advance, etc.) expensive.
The second answer, and no less important, is fees. While it is true that personal loans usually carry some commission, withdrawing cash with a credit card means assuming cash withdrawal commissions, which are generally expensive, and which will be added to the already expensive interest rates.
The last element, and no less important, is the exposure to over-indebtedness. When we constantly accumulate credit card debt, not only do we also constantly assume interest payments, but we expose ourselves to a serious risk: living on credit. Living on credit not only has a cost in interest, it also places us on the edge of default, since the moment we cannot, for whatever reason, meet the credit requested on the card, we have to face indebtedness, more interest, and default rates.
It is clear that, despite what we have described above, there will be users who continue to consider the use of a credit card as a tool to be taken into account. It is also clear that it is indeed useful for this purpose. But, even in this case, we should not be tempted to use this tool only in exceptional cases, punctually, for very specific provisions and that once repaid in the amortization of the card, they will not be repeated except in another exceptional situation.
The use of a credit card must be oriented, in any case, to take advantage of its potential of deferred payments without interests, when they offer us, or to assume certain payments that we can divide, in which, although also we are charged high interests, the advantage of immediate payment and to assume those interests is greater than the processes and procedures of requesting a personal loan.