If you require financial help, an installment loan or revolving debt could be exactly what you need to better the situation. Before taking out a loan, though, it’s important to remember what these financial instruments are and how they’ll affect you in the long term.
Installment loans are fixed-rate loans that you must repay on or before a determined date. Revolving debt, on the other hand, lets you borrow money from a lender that reaches a specific amount without going past your limit. After paying back your debt, you can continue borrowing more money so long as you require help.
Keep reading below to find out the difference between installment loans and revolving debt to give you a clearer understanding of which plan you think will suit your demands and address your needs.
What Are Installment Loans?
If you require a personal loan, home loan, or auto loan, you can typically acquire an installment loan from banks, credit unions, and moneylenders. What’s great about the particular loan is it comprises fixed interest rates. This means that before you even apply for the loan, you’ll know precisely how much you’ll have to pay each month until your debt is cleared.
In some cases, installment loans can be found with variable rates, which means your interest rate is connected to a financial index like a prime rate and often changes depending on the situation at hand. Even though the total amount that’s due can become different if you seek a variable rate loan, the schedule for repaying the loan is still the same.
Moreover, installment loans are commonly paid for each month. When you receive a loan approval, before you close the deal, the lender will let you know when you must pay back your debt. If you opted for a fixed-rate loan, they will tell you how much the loan’s total cost is before proceeding.
What Are Revolving Debts?
A revolving debt consists of home equity lines that include credit and credit cards. You are allowed to borrow money, so long as it falls within a maximum limit, and you can only opt to take out a small amount of your line of credit according to your needs.
Depending on your lender, you could acquire an open-ended debt, making your credit line open for an indefinite period. This could allow you to borrow money and pay it back for as long as you want. That situation often involves using credit cards.
Meanwhile, other revolving debt will require you to answer to a limit for your line of credit. For example, you have ten years for a home equity line of credit. Unfortunately, revolving debt won’t let you know right off the bat how much the total cost will be once you borrow money or what the deadline involved is in paying back what you owe.
Since you can borrow a small loan and return it several times while your line of credit remains open, you will have to face different interest rates every time you pay back the loan. It all comes down to basing it on the amount of money you plan to borrow. Plenty of situations with a revolving debt involves a variable interest rate, so the interest costs can differ in the long run.
Deciding between seeking an installment loan or a revolving debt comes down to your personal needs and whether you prefer borrowing a fixed amount of money or how often you wish to borrow it. Repayment policies are also factors you need to consider, as well as minimum payments, interest rates, and other charges that you have to deal with too.
Are you looking to take out a small personal loan in Memphis, TN to better your financial situation? Magnolia Finance Co. offers same-day loans with reliable repayment plans and various financial solutions. Get in touch with us today to start applying for a loan!