Why Banks Try to Sell You Credit Cards and Personal Loans

Personal loans: Predictable and profitable

Personal loans offer banks different but complementary advantages:

• These are typically installment loans with fixed terms—you borrow a lump sum and pay it back over a set period with fixed monthly payments. Interest rates usually range from 6% to 36%, depending on creditworthiness and other factors.
• What makes personal loans attractive to banks is their predictability. Unlike credit cards, where usage fluctuates and customers might pay off balances unexpectedly, personal loans provide a steady, reliable income stream over their entire term. The bank knows exactly how much interest it will earn (assuming the loan isn’t paid off early) and can plan accordingly.
• Personal loans also tend to have lower default rates than credit cards. Because they’re often used for specific purposes like debt consolidation, home improvements, or major purchases, borrowers typically have a clearer plan for repayment. The fixed payment structure also makes budgeting easier, which can improve repayment rates.
• From an operational standpoint, personal loans require less ongoing management than revolving credit products. There’s no need to monitor spending patterns or adjust credit limits. Once the loan is disbursed, it’s simply a matter of collecting the scheduled payments.

Branch-level quotas and incentives

Bank employees, particularly those in retail branches, often work under systems that reward product sales. Tellers, personal bankers, and branch managers typically have quotas for opening new accounts, issuing credit cards, and originating loans. These aren’t casual suggestions—they’re serious performance metrics that affect compensation, advancement opportunities, and even job security.

A personal banker might need to open a certain number of credit card accounts each month to earn a bonus or avoid remedial training. This creates intense pressure to pitch products to every customer who walks through the door, regardless of whether that product truly fits their needs.

The infamous Wells Fargo scandal, where employees opened millions of unauthorized accounts to meet aggressive sales targets, represents an extreme manifestation of this culture, but the underlying pressure exists throughout the industry.

The cross-selling strategy

Banks operate on a principle called “wallet share”—the portion of a customer’s overall financial life they capture. Research consistently shows that customers who have multiple products with a bank are significantly less likely to switch to a competitor. Someone who has checking, savings, a credit card, and a loan with one institution has created enough friction that moving everything becomes a substantial hassle.

This is why banks push hard to get you to open that second, third, or fourth product. It’s not just about the revenue from that specific credit card or loan; it’s about deepening the relationship and making you a stickier, more valuable customer over the long term. Each additional product increases what bankers call “customer lifetime value.”

Algorithmic targeting and pre-approval

Modern banking relies heavily on data analytics to identify promising targets for credit products. Banks continuously analyze your transaction history, deposit patterns, credit score changes, and demographic information to determine when you might be receptive to a particular offer.

That pre-approval notice didn’t arrive by accident. The bank’s algorithms determined that you fit the profile of someone likely to accept—and more importantly, someone likely to be profitable. You might have recently paid off another loan, signaling both creditworthiness and potential demand for new credit. You might have regular income deposits that suggest stability. Your spending patterns might indicate upcoming large expenses.

These sophisticated models allow banks to target their sales efforts efficiently, focusing on customers most likely to generate revenue with acceptable risk.

Credit cards: The case for strategic use

For financially disciplined consumers, credit cards offer genuine benefits:

• The rewards programs on many cards provide real value—1% to 5% back on purchases adds up over time, particularly for high spenders who pay off their balances monthly. That’s essentially free money, funded by the interest and fees paid by less disciplined cardholders and by merchant interchange fees.
• Credit cards also provide valuable consumer protections that don’t exist with debit cards or cash. Fraud liability is typically limited to $50 and often waived entirely. Disputed transactions can be charged back while you resolve issues with merchants. Many cards include purchase protection, extended warranties, and travel insurance. Using a credit card creates a buffer between your checking account and the world, protecting your liquid cash from immediate loss.
• Building credit history is another legitimate reason to use credit cards. For young people or those new to the country, responsibly managing a credit card is one of the most effective ways to establish the credit score needed for future mortgages, auto loans, and even apartment rentals. No other common financial product builds credit as effectively.

The key phrase in all of this is “financially disciplined.” If you pay your full balance every month without fail, never pay late fees, and don’t overspend simply because credit is available, credit cards work in your favor. You’re essentially using the bank’s money interest-free for 25 to 30 days while collecting rewards and building credit. In this scenario, you’re the one benefiting from the relationship.

Personal loans: When consolidation makes sense

Personal loans serve their purpose most effectively in specific situations:

• The classic case is high-interest debt consolidation. If you’re carrying $15,000 in credit card debt at 22% interest and can qualify for a personal loan at 10%, the math is straightforward—you’ll pay substantially less in interest over time while potentially lowering your monthly payment and simplifying your financial life to a single payment.
• The psychological benefit of this shouldn’t be understated. Multiple credit card balances can feel overwhelming and create decision paralysis about which to pay first. A single fixed payment provides clarity and creates a definite endpoint. You can see the progress with each payment in a way that’s harder to visualize with revolving credit.
• Personal loans can also make sense for large, necessary expenses when you don’t have cash on hand. Medical procedures, essential home repairs, or even educational investments might justify borrowing, particularly if the interest rate is reasonable and the expense truly can’t be delayed.

Some borrowers use personal loans strategically to improve their credit mix. Credit scores consider the diversity of your credit types, and adding an installment loan to a credit file consisting only of credit cards can provide a small boost. This is rarely a primary reason to borrow, but it can be a secondary benefit.

The credit card trap

For every responsible credit card user who pays in full and collects rewards, there are many more who carry balances and pay substantial interest. This is precisely what banks count on:

• The entire rewards structure is funded by the interest and fees paid by less disciplined users—it’s a wealth transfer from those struggling with debt to those who manage credit well.
• The problem is that most people overestimate their ability to be disciplined. Psychological research consistently shows that credit cards increase spending compared to cash or debit cards. The abstraction of swiping a card doesn’t trigger the same psychological pain as handing over physical money. It’s easier to rationalize purchases, easier to lose track of spending, and easier to tell yourself you’ll pay it off next month.

This is how many people find themselves in a cycle where they need to pay off one credit card by taking out another, or where a substantial portion of their income goes simply to servicing debt rather than building wealth.

Personal loans that create more problems

Personal loans carry their own risks, particularly when banks actively market them to customers who shouldn’t be borrowing. A personal loan for a vacation or wedding might feel manageable at the moment of borrowing, but it means you’ll be paying for that experience long after the memories have faded. Borrowing for consumption rarely makes financial sense.

Debt consolidation can become a slippery slope if mismanaged:

• While consolidating high-interest credit card debt into a lower-interest personal loan sounds logical, many people who do this fail to address the underlying spending habits that created the credit card debt in the first place.
• They pay off their credit cards with the personal loan, feel relieved to have those cards at zero balance, and then—having fixed nothing about their financial behavior—run up the credit card balances again.
• Now they have both the personal loan payment and new credit card debt. They’ve made their situation materially worse while the bank has profited twice.

Banks know this happens regularly. It’s why they’re often quite willing to offer personal loans to people with significant credit card debt—there’s a reasonable chance the customer will end up with even more total debt within a couple of years.

The pre-approval illusion

Pre-approval offers deserve particular scrutiny. These mailers and emails are carefully crafted to make you feel special—you’ve been selected, pre-approved, offered an exclusive opportunity. This is marketing psychology designed to increase acceptance rates:

• Pre-approval doesn’t mean guaranteed approval. It means you passed an initial screening based on limited information, usually a soft credit inquiry. The bank can still deny you after you apply and they review your full financial picture.
• More importantly, pre-approval doesn’t mean the offer is good or that you need the product.
• The timing of these offers is often designed to catch you at vulnerable moments. Received a pre-approval shortly after a major expense? That’s probably not coincidence—the bank may have noticed unusual transaction patterns. Recently paid off a loan? The bank sees available capacity to take on more debt.

From the bank’s perspective, these are opportunities. From your perspective, they might be invitations to make poor financial decisions.

Red flags: When to say no

Certain situations should trigger immediate skepticism about bank lending offers:

• You’re being offered credit specifically because you’re already struggling. If you’re carrying significant debt already, another credit card or personal loan is usually the last thing you need, regardless of how the bank frames it. Banks specifically target people with existing debt because they know these customers generate the most revenue.
• You don’t have a specific plan for the money. Opening a credit card “just in case” or taking a personal loan because the rate seems good without a clear purpose for the funds is financial self-sabotage. Credit should serve a specific, rational purpose, not exist as a vague safety net that encourages spending.
• The terms are variable or unclear. If you don’t fully understand the interest rate structure, fees, or repayment terms, you shouldn’t accept the product. Banks count on customer confusion. The more complex and opaque a product’s terms, the more likely it contains costly traps.
• You’re being pressured or rushed. Any legitimate financial offer will still be available tomorrow or next week. Pressure tactics—limited time offers, bonuses for applying today, suggestions that you might not qualify later—are designed to prevent you from thinking clearly about whether you actually need the product.
• The sales pitch focuses on minimum payments rather than total cost. When a banker emphasizes how low your monthly payment would be rather than the total amount you’ll pay over the life of the loan, they’re deliberately obscuring the true cost. A low monthly payment stretched over many years can mean paying thousands in unnecessary interest.

Making the decision

When a bank offers you a credit card or personal loan, ask yourself these questions:

• Do I have a genuine need for this product? Not a want, not a vague sense that it might be useful, but a specific, clear need that you can articulate in a single sentence.
• Can I afford the payments without straining my budget? The payment should fit comfortably within your existing cash flow, leaving room for savings and unexpected expenses. If taking on this debt means you can’t save or would be vulnerable to a financial emergency, you can’t actually afford it.
• What is the total cost, including all fees and interest? Run the numbers yourself. For a personal loan, calculate exactly how much you’ll pay over the entire term. For a credit card, be honest about whether you’ll pay in full each month or carry a balance.
• Does this move me closer to or further from my financial goals? Every financial decision should align with your broader objectives. Debt that helps you increase your income, reduce expenses, or build assets might be strategic. Debt that funds consumption or lifestyle inflation moves you backward.
• What are the alternatives? Could you save for a few months instead? Could you reduce expenses to free up cash? Could you find a better rate elsewhere? Banks want you to accept the first offer presented, but you should always explore alternatives.
• Am I emotionally vulnerable right now? Financial stress, major life changes, or even just a bad day can cloud judgment. Major financial decisions deserve to be made when you’re clearheaded and rational, not when you’re feeling desperate or impulsive.

The bottom line

Banks aggressively market credit cards and personal loans because these products are exceptionally profitable. The entire system is designed to encourage borrowing, with sophisticated analytics, incentive structures, and marketing tactics all aligned toward getting you to say yes.

This doesn’t make you a victim—you have agency and control over your financial decisions. But it does mean you’re operating in an environment where the default path leads to outcomes that benefit the bank more than you. You have to actively work against the current to make choices that truly serve your interests.

The best financial position is one where banks want to lend to you, but you don’t need to borrow from them. Building toward that position—having emergency savings, living below your means, and maintaining good credit through responsible use of minimal credit—creates genuine financial security. It also means that when you do decide to use credit strategically, you’ll qualify for the best terms and can be confident you’re making a rational decision rather than responding to clever marketing.

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SOURCES CITED

Prelec, D., “How credit cards activate the reward center of our brains and drive spending.” MIT. June 9, 2021.