At some point in our lives, we all need access to a loan to help with our needs. Three common loan types are payday loans, installment loans, and revolving credit. Keep reading for more information on these types of loans.
What is a Payday Loan?
A payday loan is a short-term loan with a high interest rate. A payday loan is completely repaid in one lump sum on an agreed-upon date, often on the borrower's next payday. A payday loan can be a good choice for a borrower who needs a small amount of cash fast.
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What is an Installment Loan?
An installment loan is a loan that is repaid over a set period of time in regular payments, or installments. The loan terms can be as short as a few months or as long as 30 years, which is often the case with mortgage loans. Once the loan is repaid, the account is closed.
Examples of installment loans:
• Student loans
• Mortgage loans
• Car loans
• Personal loans
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What is Revolving Credit?
Unlike installment loans and payday loans, revolving credit is not issued in a predetermined amount. Revolving credit is a line of credit where the borrower pays a commitment fee to a financial institution to borrow money and is then allowed to use funds as needed. The amount borrowed can fluctuate each month and is often used for business operating expenses. As debts are paid off, the credit is automatically renewed.
The most common form of revolving credit is a credit card. Other examples include home equity lines of credit (HELOCs) and retail cards.