Credit card or payroll loan: which is better?

It's nothing new that everyone needs money.

Therefore, financial institutions are increasingly offering options to try to get debtors, or people with low salaries, active as consumers.

The payroll credit card and the payroll loan are two of these ways. 

But the questions are many: what's the best option? How can I choose one of these options and avoid getting into more debt? What are the advantages and disadvantages?

All these questions will be answered in this post and in this content you will find:

• How does the payroll credit card work?
• How does a payroll loan work?
• Which of the two options is better?

How does the payroll credit card work?

Everyone is familiar with credit cards: the corresponding bank provides a credit amount, as if it were a “loan”, with a limit that can be spent. 

The person is free to make their purchases and make the payment later, committing to meet their financial obligations by the payment date previously established in conjunction with the card operator. 

When the bill is paid on time, there is no interest accrual, and the paid credit is released again for use again, and so on. 

The danger lies in not being able to pay the debt: interest accumulates, the bills snowball, and problems begin to arise. 

But you already know all this, right? Credit cards are very common these days. 

Already the payroll credit card There are some differences. The idea is the same: offering credit so the customer can make purchases using their card. 

The difference lies in the payment method: users don't have the option to default or pay late. Debts are deducted from payroll or the bank itself. 

Because of the greater payment guarantee, the interest rates on payroll credit cards are lower. However, if not used wisely, even this type of card can end up leading to unwanted debt. 

Main advantages of the payroll credit card

Among the main benefits of payroll credit card, they are: 

• No annual fee

• Lower interest rates
• Extended deadline for payment

Main disadvantages of the payroll credit card

However, as with everything in life, this type of card also has its downsides. The main disadvantages are:

• Risk of getting into debt
• Possibility of withdrawal, which increases the chances of financial loss of control. 

Other features of this card format

It's worth noting that most of the features are very similar to those of a traditional credit card. For example, the billing is practically the same. The credit limit available corresponds to a portion of your salary. 

How does a payroll loan work?

Well-known among retirees and pensioners, the payroll loan works as follows: an amount is credited to the interested party's account, but it is then deducted from their paycheck, meaning that a portion of their salary is automatically committed. 

Unfortunately, if it is not a very well thought out decision, the payroll loan can do more harm than good, as well as any other way of obtaining credit in the financial market today. 

This type of credit is preferably released to workers with formal employment contracts, retirees or INSS pensioners. 

Advantages of a payroll loan

Lower interest rates

Compared to other lines of credit, payroll loans have some of the lowest interest rates on the market. This is a plus, especially if used for an emergency. 

Many people end up opting for a payroll loan in case of illness in the family (to buy expensive medicines, for example), or to carry out an unexpected one-off repair. 

You can check the current rates directly on the Central Bank website.

Ease of hiring 

Professionals with formal employment contracts can easily obtain a payroll loan. There's virtually no red tape, and the funds are released quickly, which is also a major advantage. 

Longer payment terms

Payment can also be an advantage for those who don't want to get into a tight spot: banks offer up to 120 months to pay off the payroll loan debt. 

Disadvantages of payroll loans

If you lose your job, the debt must be paid off.

Since loan repayment is conditional on the CLT contract, if the debtor loses their job, they will need to pay all outstanding debts in one lump sum, which is very complicated, especially for an unemployed person. 

Debt lasts for a long time

Before signing a loan, you need to consider whether you're willing to carry this level of debt for a long time. Unforeseen circumstances can arise, and this can become a major problem. 

It is not possible to suspend the debt

This type of debt is deducted from the payroll, meaning it cannot be paid in any other way or reversed. 

Which of the two options is better?

Once you understand how each type of credit line works, and understand the benefits and drawbacks, it's time to analyze which of these options is best. 

It is worth noting that, in a way, these are very similar ways of obtaining credit in the market, as well as their payment method to pay off the debt. 

In both modalities, you need to ask yourself: do I really need this credit?

If the answer is yes, the next questions are:

1. Will I be able to pay the installment without compromising other bills?
2. Do I have the job security to make this long-term commitment?
3. Is this the only way to meet my need?

It's also important to highlight the times when it's NOT a good idea to use these two lines of credit:

1. To lend money to a friend or family member. They may default, and the debt may fall on you;
2. To invest financially. Most of the time, the return on the amount is lower than the interest. 

By analyzing all these options, you are able to make your decision about whether or not to use one of these lines of credit, and which one is best. 

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