In Japan, card loans allow customers to borrow money using a credit card. Applications for card loans do not require collateral, but there is a screening process with the borrower’s financial institution. If the borrower does not pass the screening, the financial institution might not loan the money.

When using a card loan, the borrower pays the amount borrowed plus interest at a rate set by the financial institution on a specific day each month. The payment method used for a card loan is similar to the revolving payment system used for credit cards. Therefore, understanding the difference between card loans and credit card revolving payments can be challenging.

It is important for businesses to know the specifics about revolving payments and card loans. This can help them understand customers’ payment behavior and refine payment plan options. For example, businesses that offer high-value products or subscription services could offer payment options that take into account the customer’s cash flow.

In this article, we examine card loans, including their pros and cons, the differences between card loans and revolving payments, and how refinancing works.

What’s in this article?

• What are card loans?
  
• What are credit card revolving payments?
  
• How do card loans and credit card revolving payments differ?
  
• Repayment methods for card loans and credit card revolving payments
  
• The advantages of refinancing credit card revolving payments with card loans
  
• What to know about refinancing credit card revolving payments with card loans
  
• Credit card revolving payment refinancing with a card loan: An example
  
• Process of refinancing a credit card revolving payment with a card loan
  
• Frequently asked questions about card loans and credit card revolving payments
  
• From expanding payment methods to increasing sales
  

What are card loans?

Card loans are a type of loan provided by banks and consumer finance companies. Individuals can borrow the amount they need within the limit set by their agreement. While the interest rates for bank-affiliated card loans tend to be lower than those on consumer credit card loans, the screening process is stricter, and it takes longer to get the loan.

Advantages of card loans

Card loans have the following advantages:

• Same-day borrowing: This is possible if the loan is from a consumer finance company.

• Fewer restrictions: Unlike a mortgage or car loan, there are no restrictions on how the money is used.

• No collateral: Customers can borrow money without collateral, and in many cases, they are not required to have a guarantor.

• Flexible borrowing: Customers can borrow as many times as they like, as long as the amount is within the limit.

• Convenience: Customers can easily borrow and repay money at an automated teller machine (ATM).

Disadvantages of card loans

Although there are many advantages to card loans, borrowers should also be aware of these disadvantages:

• Interest: It accrues during the repayment period.

• Screening process: Borrowers need to pass a screening process to qualify for the loan.

• Excessive borrowing: Large balances can be a disadvantage when applying for a mortgage or car loan.

What are credit card revolving payments?

Credit card revolving payments are a payment option offered by credit card companies, banks, and consumer finance companies. With revolving payments, borrowers pay a fixed amount each month, regardless of how many purchases they make or how much they spend. For this reason, customers are increasingly using this type of payment for large purchases.

Advantages of revolving payments

Here are some advantages to revolving payments:

• Flexible payments: Borrowers pay the amount they choose each month at their own pace.

• Unexpected purchases: Borrowers can make purchases when they don’t have enough cash for an unexpected expense.

• Payment options: Borrowers can make early payments or extra payments or repay fully in a lump sum.

Disadvantages of revolving payments

Revolving payments have a fairly negative reputation. Here are some of the disadvantages of using revolving payments:

• Interest: It accrues during the repayment period.

• Repayment length: If the monthly payment amount is small, it can take a while to pay back the balance in full.

• Excessive spending: Because borrowers can make small monthly payments, there can be a tendency to overspend.

How do card loans and credit card revolving payments differ?

The biggest difference between revolving payments and card loans is card loans are solely for borrowing money and do not have shopping functionality. For this reason, a card loan cannot be used to make purchases directly. In addition, the interest rate and the maximum amount that can be borrowed are different from revolving payments.

Differences between card loans and credit card revolving payments

Interest

The interest rates for card loans are often lower than the interest on revolving payments. If a borrower is overburdened by paying off revolving payments, they can reduce the burden by switching to a card loan with a lower interest rate.

There are two main types of card loans: bank-affiliated card loans and consumer finance company-affiliated card loans. Interest rates for bank-affiliated loans tend to be lower than those offered by consumer finance companies.

Using a consumer finance company loan for the first time, in most cases, results in the maximum interest rate. However, some consumer finance companies offer a no-interest period. If a borrower plans to repay the loan quickly, the consumer finance company loan might accrue less interest. It is important for borrowers to compare the various card loans available and select the one that suits their needs.

Limit

Both card loans and credit cards have an upper limit on the amount of money a borrower can use. This limit is determined based on a variety of factors, including the borrower’s income, occupation, family structure, and employment status, among others. Generally, the limit for card loans is higher than with revolving credit card payments.

Repayment methods for card loans and credit card revolving payments

The main repayment methods for both credit card loans and revolving credit card payments are shown below. Repayment methods differ from company to company.

Fixed amount method

The fixed amount method is a system often used for bank-affiliated card loans and revolving credit card payments. There are two types of fixed payment plans: a fixed principal method and a fixed principal plus interest method. Each is slightly different, and we explain them below:

Fixed principal method

The fixed principal method sets a fixed payment amount for each month but does not include the fee. The handling fee changes each month based on the rolling balance of payments. Because the fixed principal method applies a larger percentage of payments to principal, the total amount repaid will be less than the fixed principal plus interest method, everything else being equal.

Fixed principal plus interest method

With the fixed principal plus interest method, the amount of the monthly payment—including handling fees—is fixed. Even if additional purchases are made along the way, the monthly payment amount remains the same. In the early stages, the processing fee is high because it is a percentage of the principal. The principal is less likely to decrease compared to the fixed principal method, and the total amount repaid will be higher.

Fixed rate method

Consumer finance company card loans often use the fixed rate method. In this method, a fixed percentage (i.e., fixed rate) is multiplied by the remaining balance. The payment amount is determined by adding the finance charge to that amount. As the outstanding balance decreases, the payment amount also decreases. If the fixed rate is low, the monthly payment amount also remains low. However, this causes the principal amount to decrease slowly, so it will take longer to complete repayment.

Balance sliding method

The balance sliding method is a repayment method often used for bank-affiliated card loans. In this system, the payment amount changes according to the outstanding balance. For example:

• If the balance is less than ¥100,000, the payment amount is ¥10,000.

• If the balance is between ¥100,000–¥200,000, the payment amount is ¥20,000.

• If the balance is between ¥200,000–¥300,000, the payment amount is ¥30,000, and so on.

The conditions under which the slide occurs differ from one finance company to another.

The advantages of refinancing credit card revolving payments with card loans

If a borrower wants to reduce their credit card revolving balance fees, one option is to pay off the revolving balance in one lump sum. But a lump-sum payment requires the borrower to save money. If they refinance the credit card’s revolving payments with a suitable card loan, they can repay the revolving payments as a lump sum and reduce overall fees. Here are some advantages of refinancing revolving payments with a credit card loan:

Lower interest rate

Refinancing with a card loan sometimes results in a lower overall interest rate. This is because the interest rate on card loans is usually lower than the interest rate on revolving payments.

Shorter repayment period

By using a card loan with a lower interest rate to refinance a credit card’s revolving payments, the amount of interest can be reduced. This means the total repayment amount will also be lower. After refinancing to a card loan, a borrower can shorten the repayment period by paying the same amount they would have for the revolving payments.

Easier payment management

If a borrower has revolving payments from several different financial institutions, the monthly payment amount and the payment dates will vary. Sometimes, borrowers forget to make payments, or the total amount of the payment is hard to figure out. This can be stressful for some borrowers. By refinancing to a single card loan, multiple revolving payments can be bundled together, which makes managing repayment easier.

More available to spend

A borrower can restore the shopping limit on their credit card—making it easier to pay for unexpected expenses—by transferring the credit card’s revolving payments to a card loan.

What to know about refinancing credit card revolving payments with card loans

While refinancing a credit card’s revolving payments with a card loan has advantages, there are also some important ideas to consider:

Lower interest rates

In most cases, refinancing revolving payments with a card loan is done to lower the interest rate. In other words, if the card loan’s interest rate isn’t lower than the revolving payment interest rate, refinancing might not be beneficial. It’s important for borrowers to check whether the interest rate will be lower before refinancing to a credit card loan. Borrowers can simulate repayment scenarios by using online payment calculators to confirm that total payments will go down and by how much.

Screening process

In order to switch to a card loan, borrowers must pass the lender’s screening process. It’s important to plan the application carefully, taking into account the necessary documents, wait time for the application results, etc.

Careful borrowing

Even if the interest rate decreases when refinancing to a card loan, the monthly payment amount and repayment period could increase if a large amount is borrowed. This means the total amount of interest could also rise. It is a good idea for a customer to borrow only what they absolutely need.

Repayment period

The payment method for card loans is the same as revolving credit card payments. If payments aren’t managed properly, it’s easy to inadvertently extend the repayment period, just like revolving credit card payments. Borrowers should make payments on time and try to shorten the repayment period by making early or extra payments whenever possible.

Credit card revolving payment refinancing with a card loan: An example

Here is an example of how much a borrower can save by refinancing revolving credit card payments with a card loan.

The calculation method used by financial companies varies depending on the payment method. In many cases, borrowers can use a website to simulate revolving payments. For this example, we use the formula on the Keisan website to calculate the fees for a revolving payment. Then, we simulate refinancing the revolving credit card payments with a card loan.

In this example, the borrower switched from a revolving credit card loan with an interest rate of 15% to a card loan with an interest rate of 13%. The loan amount is ¥300,000 with a monthly payment of ¥10,000.

Note: The actual amount repaid will vary depending on the financial company.

Based on these results, an interest rate difference of just 2% can result in a difference of ¥13,578 in the amount of interest paid.

Process of refinancing a credit card revolving payment with a card loan

Here are the steps for refinancing credit card revolving payments with a card loan:

Check the balance and interest

Check the current balance, interest rate, monthly payment amount, repayment end date, etc. of the revolving payments.

Find a card loan

Find a credit card loan with an interest rate lower than the current revolving payment rate. At this point, borrowers should also consider the payment method, number of payments, and repayment period. They can also make sure the credit card loan is suitable for refinancing.

Apply for the card loan

Apply for a card loan and go through the screening process. Note that not all credit checks are approved.

Borrow money using the card loan

Customers can borrow the money they need to repay revolving payments in one lump sum if they pass the credit review.

Pay off the credit card balance

To pay off a credit card’s revolving balance in a lump sum, use the money borrowed with the card loan.

Start repaying the card loan

Now, the refinancing is complete. The repayment of the card loan starts from here.

Frequently asked questions about card loans and credit card revolving payments

Can I get a loan even if I use revolving payments?

In general, it’s understood that using revolving payments has little effect on credit card loan screening. However, customers should be aware that some credit companies might ask about revolving payment balances from shopping, etc., and this can have an impact on the financial company’s screening process. Also, even if it is the same loan, there are cases where having a large revolving payment balance can be a disadvantage when applying for a mortgage or car loan.

Can card loans be used repeatedly?

With a card loan, customers can borrow money as many times as they like for any purpose, as long as they stay within the limit established at the start of the agreement. Although card loans are very convenient, it is important to use them cautiously so payments do not become a long-term obligation.

Which is better: installment payments or revolving payments?

There are clear differences between revolving and installment loans. With revolving payments, the borrower determines the amount to be paid each month. With installment payments, the borrower chooses the number of payments from a list of options provided by the financial company. It is difficult to say definitively which is better because the terms and conditions differ, such as fees, payment method, and payment period.

From expanding payment methods to increasing sales

A card loan is a very convenient personal loan service that allows customers to apply for an unsecured (i.e., no collateral required) loan and freely use the borrowed money for any purpose. The money can be borrowed as many times as the customer wants, up to the credit limit. On the other hand, as with revolving credit card payments, interest is added to the repayment amount, so it is important to repay the money in a well-planned and deliberate way.

By understanding payment methods—such as card loans and revolving payments—business owners can offer diverse payment types. This can lead to increased sales and stronger financial risk management.

Stripe is currently preparing to support three payment methods for the Japanese market: installment payments, revolving payments, and bonus payments. A preview version is currently available for testing, so if you are a business owner in Japan interested in trying it, feel free to contact us.