Did you know there are three different types of credit? What are these different types of credit? Revolving credit, instalment credit, and open credit are the three primary categories of credit. People can use credit to borrow money to pay for products or services. After a predetermined period of time, the lender anticipates receiving the payment plus additional money (referred to as interest. Lets go into more detail about this…
- Revolving Credit: revolving credit or continuous credit is one sort of credit that has a capped limit and can be utilized up until you hit the set barrier is a line of credit. Although there may be a set repayment schedule, it usually only consists of the regular minimum instalments. A credit card would be a good example because it has a ceiling on how much you can spend on it (the credit card limit), and you can use it as much as you like until you do (then over-limit fees apply). Another illustration is a HELOC (Home Equity Line of Credit).
- Instalments are another form of credit with a set payment schedule for a predetermined time period is an instalment loan. A automobile loan is an example of an instalment loan; you are obligated to make regular payments of a certain amount (for instance, R500 per month) until the debt is completely repaid. Mortgages, student loans, and term loans are some further examples.
- Open or active credit is a sort of credit that needs to be paid in full every time a period, such every month, passes. Similar to a credit card limit, there is a maximum amount you can borrow, but you must repay the entire amount borrowed at the end of each period. An illustration of this would be a cell phone bill. You can make calls, send texts, and use data each month, but you must pay for the services you used at the end of the month (including any additional usage fees). Utility bills would be another illustration (such as electricity usage in your household).
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