Line of credit or payday loan?

 

Less known than the payday loan, the line of credit also allows to have a sum of money to finance projects. But these two solutions differ both in terms of repayment terms and in terms of interest levels.

Operation and interest of the payday loan

Operation and interest of the personal payday loan

Well known for a long time, the payday loan is an interesting solution when one wishes to have a sum of money quickly in order to finance a project, and whatever the project in question. Its operation corresponds to that of any credit since the obtaining of a sum of money by a bank or an organization triggers the credit repayment process.

In principle, the repayment is made monthly in monthly installments, which include a portion of the borrowed capital, to which is added a portion of the interest due to the bank and which represents the cost of credit. These interests generally vary between 3% and 10%.

The advantage of the payday loan is that the borrower pays a fixed sum throughout his credit. There is therefore no bad surprise to fear with this type of credit. In addition, the payday loan is relatively easy to obtain in relation to the line of credit insofar as the income conditions are generally less demanding.

Operation and interest of the line of credit

Operation and interest of the line of credit

The line of credit belongs to the family of revolving loans. Once the line of credit is granted, the borrower has a cash which he can use if necessary. The main feature of the line of credit is that it only pays interest on the portion of capital that has been spent.

Conversely, this means that the borrower will not pay any interest if he does not use the available money in his line of credit. It should be noted, however, that interest rates are generally high in the context of lines of credit. The main advantage of the line of credit is that it offers real cash security in case of unplanned expenses. However, this solution is aimed at people with significant income to avoid the risk of over-indebtedness. In addition, its simplicity of use presents a risk in case of mismanagement.

Finally, the absence of refund of interest in case of non-use of cash does not mean that nothing is reimbursed: the borrower who does not use his line of credit will still have to repay at least 2% of the loan. credit balance each month.

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