Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Oct 8, 2019
When it comes to loans, there are an array of loans to pick from. There are mortgages, credit cards and payday loans; however, while there are lots of different loans to choose from they typically fall into one of two categories: installment loans or revolving lines of credit.
What is an installment loan?
Installment loans are loans where you pay a set fixed amount. For example, if you take out a student loan, your fixed amount would factor in the interest rate as well as the principal amount and then divided equally over a set period. If you want to repay it in 10 years you would divide that amount over 10 years and that is what you would pay equally.
What's better? Installment or revolving credit?
With an installment loan, you know what you will be expected to pay monthly, whereas a revolving credit is one that can vary over time. A revolving line of credit is a loan that you can use as long as there is a balance. Short in the bank and saving? Say you take out a $5,000 from the bank to do upgrades to your home, if this were an installment loan, you would have a set fee. On the other hand, if this were a revolving line of credit, so long as you paid into the line of credit, you can continue to use the loan but not go above it.
If you use loans properly - such as paying them back on time, loans are a great way to build or rebuild credit. Installment loans are also good in cases of emergency. Depending on the need, they make for a great short-term loan from the bank or a payday loan lender. It's important to remember though that these loans aren't meant to be long term solutions – just short term.