Revolving credit, like a payday loan, makes it possible to obtain a sum of money from a bank or a credit institution, but at separate rates and conditions of repayment. Is it better to choose a revolving credit or a payday loan?
What is the point of opting for revolving credit?
The revolving credit allows to freely dispose of a sum of money determined in advance between the lender and the borrower, and the latter can use this sum of money as he sees fit, without having to justify it expenses. Once the credit is taken out, the money is available to the borrower. However, this credit will cost him nothing if he does not use the amount of money he has at his disposal.
On the other hand, if the borrower uses the released funds, he will automatically activate the loan. From that moment, the credit produces interest, the amount of which can amount to significant percentages of up to 16% or even 20%. Furthermore, the peculiarity of this type of credit is that the funds are replenished as and when repayments are made, hence its name as revolving or replenishing credit.
Very practical for borrowers who want to have liquidity quickly, revolving credit must however be used with caution in order to avoid the risks of over-indebtedness in the event of mismanagement.
What is the point of opting for a payday loan?
Like revolving credit, the payday loan allows to freely dispose of a sum of money. But generally, without this being an obligation, the borrower will use this amount of money to finance a particular project. The payday loan is ideal for a trip or to buy a new car for example.
However, unlike revolving credit, the borrower knows from the start the amount of his future monthly payments, because these are fixed from the beginning to the end of the repayment period. The advantage of the payday loan is that it allows you to know exactly the need amount of the monthly payments without any unpleasant surprises.
In addition, interest rates are significantly lower than with revolving credit since they are between 3% and 10% against 16% to 20%. However, interest is systematically reimbursed as soon as the payday loan is activated, whereas it will not be reimbursed under the revolving credit until the funds are used.