There are money options galore. Do I qualify for a bank loan, a cash advance loan or a new credit card? What is the difference between credit and a loan? Is there a difference?
There is a difference: credit cards, cash advance loans and bank loans.
Credit is defined as the ability to borrow money. A credit card company will offer a set credit limit amount and the how and when you use it is up to the cardholder’s discretion. There is no set payoff plan. A credit card works as revolving credit. The amount paid in each month is keeping the account current, but a minimum payment is not going to get the debt paid for anytime soon. When you carry small debt, the minimum payment reflects the balance in the same manner as large debt. Keep paying little bits every month, always have a remaining balance to consider using for wants or needs and keep making endless payments. It takes a person to have fierce determination and discipline to limit credit card usage as well as to pay down old debt. Companies continuously offer incentives to spend more. It isn’t easy.
What is a loan? A loan is a set amount which is applied for by the borrower. A loan is the actual money which comes from the lender along with a promise by the borrower to pay it off on a set schedule. Once a borrower gets the cash, the payments begin. A small loan will have a shorter term and larger loans like a home mortgage will have much lengthier payoff periods. The monthly payments remain the same unless you pay extra towards the principle. Many lenders will want to know what the money will be used for and how the borrower will be able to afford to pay it off. If you are looking for a small short-term loan like a cash advance online, the lender will not ask those questions, but will let you know that the payoff is due on your next paycheck. Home mortgages carry a payoff plan which most often lasts for decades.
With loans or other credit, there is always a price to pay, it is called interest. Interest is your cost for using third party money. Depending on what type of money you are looking for, how much and by what kind of lender; interest rates will vary. Your credit history will also play a large role in determining this rate as well. Most lenders will view your credit history in order to set the interest rate.
Cash advance loans will not use your credit history to determine interest rates.
Short-term loan lenders for cash advances and payday loans do not vary interest rates based on credit. There are set limits per state depending on what the government will allow, but within the state, the interest is more like a “one size fits all” type of thing.
When you are looking for money, understand what you need and which money solution would work best for your situation.
