The Difference Between Installment Loans and Credit Cards

Description:

The article describes installment loans and credit card loans. Discussed in this article is their difference in terms of the duration of the payment, the difference in interest rates and the types of situations where they are best applied. Included in this article are the advantages and the disadvantages of the mentioned types of loans. Read more about Credit cards at http://en.wikipedia.org/wiki/Credit_card

Loans and credit scores are already a very common topic nowadays. One must really understand what they really are and how they work. When a person already knows the ins and outs of the finance world, he or she can avoid risking having a bad credit score. Experts categorized debts between “good” and “bad” debts. Let us dissect the categories to understand them better.

Installment Loans

This category is refered by some as a “good” kind of debt. School loans and car loans are good examples of debts that are within this classification. So why are they considered good debts? There are a few reasons why. First is that the monthly payments for these kinds of debts are fixed and terms and conditions are discussed and planned beforehand. It basically means that you know what you are getting in to. The monthly payments on installment loans is made of a part of the principal plus a part of the interest rate. There is no surprise and additional charges because the same amount will be charged untill the term is over. Also, one will know how long the term or life of the loan is because it is already projected. With these information, one will not be overwhelmed by the payment because he or she could always prepare in advance. It is easier to pay loans under this category and therefore minimize the risk of lowering your credit score because of late payments. Due to the size of the amount that needs to be paid, a borrower needs to use the item purchased as the collateral. It means that when the loan payment is going south, the lenders can repossess the item. Installment debts have lower interest rates compared to credit card debts.

Credit Cards

Anyone, no matter if he or she is in the banking business, is familiar with the credit card. It is almost an essential part of life especially in first world countries where the use of cash in big amounts is becoming rarer and rarer. So how do they really work? The type of debt that credit cards make are called revolving debts. If an installment credit has a fixed monthly payment and has a set time of completion, a revolving credit has a limit to the amount you can loan and the payment depends on the outstanding balance you have at the end of the month. There is no definite end on credit card loans. As long as you pay off outstanding balances off, you are still in good shape. The bad side is that the loan will never end if you keep missing payments. While installment loan applications are rigid, one can get a credit card without having a collateral.The Difference Between Installment Loans and Credit Cards

Which One to Choose?

Choosing what kind of loan depends on the borrower’s goods and banking needs. Of course, it is better to choose installments when you want to get expensive things like a car or a house. For other goods, credit cards are usually used. One must practice restraint when having a credit card though because uncontrolled credit card usage leads to overwhelming debt and ruins one’s finance status. Every one has different needs and different ways to choose and handle loans. All a person needs to do is to plan well and ask if he or she can handle dealing with the loans they plan to get. You can read more about installment loan by clicking here.

Leave a Reply

Your email address will not be published. Required fields are marked *