People want to make the best financial decisions they can so that they have as much economic stability as possible. For most people, this involves a line of credit of some kind. The lines of credit that a person chooses to use can be a major factor in how their finances take shape overall and what purchases they are able to make. The challenge is that there are multiple credit options that you can offer to consumers. Let’s look at the differences between revolving credit and installment credit.

Revolving Credit Options

You’re probably very familiar with revolving credit, but you might not realize it because it’s not often called by name. A very common example of revolving credit is a credit card (or in some cases a line of credit). Typically the limit someone can borrow or use is fixed, and it doesn’t change when payments are made.  As long as somebody does not exceed that limit, they can use the credit as often as needed. 

So in a revolving credit option, the customer is not borrowing a single, large amount upfront, and there’s no formal payment plan. The lender will typically require a minimum payment each month based on how much of the revolving credit line is used, but that is a fluid number. 

Because a consumer has the ability to use as much of the credit as they’d like at any given time, the lender is theoretically at greater risk, so they’ll typically charge higher interest rates (with interest being due on the amount of the credit used, not the total amount of the credit line). Additionally, most lenders tend to start people off at lower credit limits and build it up over time based on their spending and payment history. 

Installment Credit Options

You’re probably even more familiar with installment credit if you or anyone you know has ever had a car or mortgage payment. Installment credit is an amount of money that is given with a specific amount of time to pay it back (known as the “loan term”). The amount of money borrowed is referred to as the principal. The borrower agrees to pay installments at a predetermined time– typically monthly — over the loan term (which can be as long as several years).

Some other examples of installment loans are student loans, personal loans. In every case, you’ll know exactly how much the customer needs to pay each month, and the length of time those payments have to be made. The amount of the loan doesn’t typically increase, so if the customer needs more credit, they would have to formally apply for it. 

Fund My Contract

The main thing you want to remember is that you should choose the line of credit that fits your needs best. Compare the benefits, features, pros, and cons of different lines of credit, and choose the one that’s perfect for your business. 

But where do you even start? A fantastic starting point is by contacting us. Here at Fund My Contract, we’re the fast, easy way to finance your customers, and we can help you navigate the best line of credit to use.

Fill out a form or give us a call now at 1-800-369-2761.

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