Not all loans are created equally.
If you're researching different types of cash loans and trying to decide which is right for you, you're probably come across these two types of loans: installment loans and revolving credit.
What are they, how are they different, and which one is right for you? Read on to find out!
What is an installment loan?
An installment loan is a type of credit that must be paid off over a set number of payments (or installments). Normally, the loan must be paid back over at least 2 payments to be considered an installment loan. Installment loans can be paid off in as little as a few months or as long as several decades. A common example of an installment loan is a mortgage. Your mortgage has set payments agreed upon by you and your lender.
What is revolving credit?
Revolving credit is a type of loan that is automatically renewed once it's paid off. The most famous example of revolving credit is a credit card. Once you pay down your credit card balance, your credit limit is restored to the amount you had prior to taking out the debt in the first place. Lines of credit work much the same way. It's considered 'revolving' because it's a continuous cycle.
What type of loan makes more sense for me?
The truth is, neither an installment loan nor revolving credit is inherently better. They both have positives and negatives. Here's some considerations.
Will you need to borrow again in the future?
This is probably the most important consideration in whether or not you should get a loan with revolving credit or installment payments. If you're seeking a one-time emergency loan, you're probably better off seeking an installment loan, as once the debt is paid off, it's gone. If you think you'll need to regularly borrow money, on the other hand, revolving credit may make more sense.
Are you able to stick to a payment schedule?
If you're unsure what type of payment schedule you'll be able to stick to, a revolving credit loan may make more sense. Revolving credit, like credit cards, often allow you to make small minimum payments which are a fraction of your total debt. Installment loans, on the other hand, require you stick to a strict repayment schedule. If you miss payments, you may be forced to pay harsh penalties, or see your credit score take a dive.
What can you afford based on your income?
No matter what type of loan you decide to obtain, your income is the most important consideration. Both installment loans and revolving credit are loans that need to be repaid. Only borrow what you can afford to repay. That said, an installment loan is likely going to be the better option if you need an emergency loan. An emergency installment loan can help you get over a tough spot, if there's ever a time you're having trouble making ends meet.
Are you seeking an emergency cash loan? Magical Credit can help. We offer loans between $2,000 and $10,000 for Canadians with a steady source of income, and proven debt repayment history. Our loans are all installment loans, with terms between 12 and 24 months.
Fill out an application today!