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When it comes to borrowing money, there are two main forms of credit that most people have the option of applying for: installment loans and revolving credit. These two forms of borrowing can allow you to fund a multitude of expenses and purchases, but they also function very differently.
In this respect, before you decide to apply for no credit check installment loans for bad credit, you should take into consideration how each of these loans can affect your credit differently and also review their features to see which one works better for your financial situation.
So, let’s quickly break down these two lines of credit, which should hopefully help you make a well-informed financial decision now or in the near future.
What’s The Difference Between Installment Loans & Revolving Credit?
When it comes to long-term installment loans with no credit check via USInstallmentLoans, you will usually be provided with a lump sum, which you will be required to pay back in small, regularly scheduled monthly payments within a set period of time.
These types of loans are usually meant to be used for dealing with long-term, high-value borrowing such as debt consolidation, funding big-ticket items like businesses, cars, or homes, paying for renovations, etc.
On the other hand, taking out revolving credit would mean being provided with a credit line that you can keep on borrowing from as many times as needed, as long as you don’t exceed the maximum limit.
Once you hit that limit, you will need to pay down some of the debt to continue borrowing. A good example of this is a credit card, where you are provided with a credit limit and, as long as you stay below it, you can keep on borrowing.
What Are The Key Features of Installment Loans?
- Fixed terms: Installment loans allow you to borrow a specific amount of money upfront and pay it back within a set period of time. The interest rates typically remain the same and the benefit of this is that you are able to budget your payments much more effectively than most other forms of credit. As a result, there is no chance of having to deal with any unpleasant surprises.
- Secured or unsecured: Installment loans can come in two different forms, secured or unsecured. Secured installment loans will usually require you to put up some form of collateral like a car or home to get funding, while unsecured installment loans do not require you to put up any security.
The benefit of secured loans is that they typically come with lower interest rates compared to unsecured loans, but failure to make your repayments on time means that your property or asset could be repossessed.
What Are the Key Features of Revolving Credit?
- Flexibility: When it comes to revolving lines of credit, you have the ability to choose how much you would like to borrow, within a certain limit. For instance, if you manage to get approved for a revolving line of credit of $10,000, you can essentially borrow up to that limit at any time.
- No fixed terms: With revolving credit, you can feel free to pay off the amount that you borrowed by making repayment amounts of your own choosing at any time. In other words, you don’t have to worry about sticking to a fixed payment every month, as you can pay back as much or as little as you can afford to pay.
- Variable interest rates: Revolving lines of credit usually come with variable interest rates that can often vary depending on the current market rates. The benefit of this is that you may be able to borrow at a low-interest rate, compared to most other lines of credit that normally come with a fixed rate.
What Are The Disadvantages of Installment Loans?
While there are some benefits to borrowing installment loans, you also have to take into consideration the fact that there are some drawbacks. For one, some lenders may charge you a prepayment penalty for paying back the loan too early.
This is because doing so deprives them of profit from the loan’s accruing interest over time. This is something that is never a problem when dealing with revolving lines of credit. On top of that, most installment loan providers tend to have very stringent lending requirements, which can make it difficult to secure a loan, especially with a bad credit score.
The good news is that you can often use lending services like USInstallmentLoans, as they can connect you to lenders that accept applications with bad credit. However, you will likely end up having to pay high-interest rates due to the increased level of risk for the lender.
In addition, installment loans can often take quite some time to be processed, especially when borrowing from traditional lenders like banks and credit unions. As a result, they are not well-suited to dealing with financial emergencies, unlike revolving lines of credit that can typically be accessed almost at any time.
What Are the Disadvantages of Revolving Credit?
One of the downsides of revolving lines of credit is that some providers may charge annual maintenance fees or cardholder fees for the account. On top of that, you may also be subjected to late payment fees that can often be extremely expensive.
Another drawback is that they often come with variable interest rates that can potentially end up being significantly higher compared to installment loans that come with fixed rates. Furthermore, unlike most fixed-rate installment loans like mortgages and business loans, the interest accrued from this form of lending is usually not tax deductible.
In addition, failure to make your repayments on time can often lead to significant damage to your credit score, especially if you happen to be carrying a high balance over time.
Bottom Line
Both installment loans and revolving credit can be useful in more ways than one, but it is important that you are able to effectively differentiate between the two so that you can pick the right one that best fits your financial situation and current needs.
Installment loans can be a good idea if you need a fixed sum of money to make a huge purchase, like a car or home. However, if you are not fully confident of how much money you need to fund a certain purchase or expense, then opting for a revolving line of credit is more practical.
In this respect, when comparing the two, neither option is better than the other. That being said, if you are looking to build up your credit rating quickly, then revolving credit can often end up mattering slightly more.
This is because while installment loans prove that you can consistently pay back borrowed money each month, revolving credit impacts your credit utilization rate. And this is often what effectively proves to lenders that you can be a reliable, long-term customer.
However, if you do decide to take out an installment loan, then you should consider using an online service like USInstallmentLoans to connect to a reliable lender, especially if you have a less-than-stellar credit score.
Either way, whichever option you inevitably decide on, it is essential that you always make your repayments on time, as both types of financing can damage your credit rating if managed irresponsibly.
It is for this reason that a good rule of thumb you should always consider is setting up automatic payments with your provider to ensure they at least receive their minimum payments on time.
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