Types of Credit: Instalment Credit Vs Revolving Credit
There are different types of credit that are available to choose from any time you want to borrow money from a financial institution. Examples of types of credits are auto loans, student loans, personal loans, mortgage loans and payday loans. With all these available credits, you need to choose the one that is right for your situation. Otherwise, you may find yourself trapped in debts or you are paying interest that are totally avoidable. So, you may want to know which type of credit is right for you. While there are different types of credit or loan, we shall discuss on two broad classifications namely instalment credit and revolving credit.
Instalment Credit Vs Revolving Credit
What is Instalment Credit?
Instalment credit is the money you borrow for a specific period of time and repay it in fixed amounts, on a regular basis, until the loan is paid off. Examples of instalment credit are car loans, student loans and mortgage loans. Just as the names of the examples of the loans, instalment credit is a good way of financing car purchase, home purchase and student educational expenses. Once you have taken instalment credit, it becomes an obligation for you to pay certain amount every month. Therefore, before you go for instalment credit, you should ensure that you have income that will help you not to default on the loan.
What is Revolving Credit?
Revolving credit which can also be referred to as recurring credit is the money that you borrow up to your credit limit on an ongoing basis. You make regular payments in varying amounts depending on the balance of your account. A good example of revolving credit is credit card. A line of credit which is also known as open status credit is another example. Revolving credit can be good for people without regular income. There are people like freelancers who don’t receive fixed salary at the end of every month. Even though they earn income, their income is not predictable. For people like this, they can easily tap into revolving credit and there won’t be any pressure on them to pay back a specific amount every month. What is important is that they must ensure that they pay their creditors at least a minimum amount on their outstanding debt balance at the end of every month.
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