Consumer credit allows an individual to finance various projects such as buying a car or carrying out work. It is also a way to help in the management of daily life. The borrower then has the choice between a payday loan or revolving credit. To make his decision, he must take into account his needs and resources.
Payday loan: Fixed conditions
The payday loan is an amortizable loan which is used to finance a specific project, determining the amount of the loan. payday loans have several advantages:
- stability, with an amount and a repayment duration defined at the time of signing the credit agreement, which avoids unpleasant surprises for the borrower;
- the rate is fixed over the entire term of the loan.
- the interest rate is often lower than for revolving credit.
But the payday loan is not suitable for everyone and also has disadvantages:
- the monthly payments and the interest are payable as soon as the sum is paid, even if it is not used immediately;
- it is granted subject to solvency and is therefore not accessible to all.
Renewable credit: More accessible, but more risky
The revolving credit makes available to the borrower a sum of money which he uses as he wishes. This money can be used to provide for daily needs and for several purchases. When the client uses part or all of the sum, the account dedicated to revolving credit is immediately replenished. A solution that has its advantages:
- the amount borrowed is still available;
- if the borrower does not use the money made available to him, he pays no fees. The monthly payments are only triggered when the sum is spent;
- revolving credit is easier to obtain.
But revolving credit remains risky for the borrower since:
- the rate is often very high;
- the rate is also variable;
- the total cost of the loan is not known beforehand.
If you are aiming to improve your credit score by paying off debt, start with revolving credit card debt. .Plus, they often come with larger interest rates than installment debt, so it can save you money to tackle your credit cards first.