Personal loan or revolving credit

You want to take out a personal loan or a revolving credit in 2020 and there are a number of differences that can determine your choice. What is better and cheaper for you, a maturing loan or a loan with readmissions and is a revolving credit really cheaper per month? Always compare the different loans online to make the best purchase. In 2020, the maximum term of a revolving credit is 15 years.

Borrow money in 2020

  • Types of loans and credit, the most important differences at a glance
  • Benefits of a personal loan
  • Advantages of a revolving credit
  • Main differences between a personal loan and a revolving credit
  • The interest costs of a loan
  • Conclusion about the differences between a personal loan and a revolving credit

Types of loans and credit, the most important differences at a glance

There are many types of loans and credit. They all have their own characteristics and rules. The reason why you borrow money can also vary enormously. It could be for the car that suddenly stops working, your upcoming wedding, a nice holiday, the new washing machine or to take out a new motorcycle loan. Or perhaps you want to take out a mortgage for a new house or to improve the house in which you live. So many reasons. If it is not a mortgage for your house, you will soon end up with two very well-known forms of credit: the personal loan and the revolving credit. They also have their own rules. In both cases it concerns a credit, which you can also take out online. But there are also major differences between them.

Benefits of a personal loan

With a personal loan you borrow a predetermined amount. For example, you want to buy a car and are short on money. To close that gap, you take out a personal loan. As soon as the bank has approved, you will receive the loan amount almost immediately into your account and you can buy your car. The personal loan is very clear. You borrow once and pay a certain amount in interest and repayment every month. The interest rates are much lower than when overdrafting at the bank. There are banks that charge you more than 15 percent interest for overdrafts, while the interest for a personal loan will be closer to 6%, depending on the provider and market conditions. So a huge difference.

Advantages of a revolving credit

A revolving credit also has advantages. Revolving credit is a flexible way of borrowing and also a cheap way of borrowing. Because a revolving credit is usually an interest-only loan, your monthly costs are a lot lower than if you do have to make repayments. The bank assigns you a certain credit limit that you must stay below. Suppose your limit is 50,000 euros and you have only withdrawn 10,000 euros, then there is no reason to repay more. It is allowed, but it is not necessary. Depending on the interest rate, the long term may mean that your monthly costs will be half of the monthly costs that you would have to pay with a personal loan.

Main differences between a personal loan and a revolving credit

The most striking differences between a personal loan and a revolving credit can be found in the table below, which are then explained:

The personal loan:

The revolving credit:

You pay a fixed interest rate during the loan

You pay a variable interest rate

There is a fixed repayment

There is a limited repayment up to the credit limit

It is a one-time loan

You can withdraw freely up to the credit limit

Taking out additional term life insurance is often mandatory

No additional insurance required

1. The fixed interest rate on a personal loan provides certainty

The interest is usually a snapshot. Interest rates in the market can fall and rise. What you pay now for a loan does not necessarily have to be the same as the interest that you would have to pay at a later time. With a personal loan, the interest applies at the time of taking out the loan. This is a fixed interest rate for the entire term. A revolving credit has much more flexibility built into it. This is also evident from the fact that you pay a variable interest rate. This may mean that at any time the interest rate may be higher or lower than for a personal loan.

2. The monthly repayments of a loan, personal loan is an expiring credit

When you take out the loan, it is known how long the credit will last and how much you have to repay monthly. Your debt decreases monthly with the repayment you pay. With a revolving credit you make partial repayments. As long as the agreed amount, the credit limit, has not been exceeded, you can withdraw money again. But additional repayments are not mandatory. It will be clear that your monthly costs will be a lot lower.

3. Being able to withdraw money freely with a revolving credit, redraws are allowed, maximum duration 15 years

With revolving credit you can withdraw money freely, as long as you do not borrow more than is permitted. This means that a revolving credit can also be a monthly supplement, allowing you to withdraw some money regularly. This is not the case with a personal loan. You receive the money into your account once and then gradually pay off the loan. For loans taken out after May 1, 2019, a revolving credit has a maximum term of 15 years and it is regularly checked whether the loan still suits your personal situation and income.

4. Extra insurance is often mandatory, but not always

When taking out a loan, you should check whether you are obliged to take out term life insurance. Sometimes you have the choice, but sometimes you are obliged. This may differ per provider. The insurance means, on the one hand, that you have to pay premiums and, on the other hand, that you will not leave your surviving relatives with a debt in the event of death. With revolving credit, term life insurance is usually optional.

The interest costs of a loan

With a personal loan, the interest rate and term are known in advance. The interest that must be paid varies per provider. On top of that there are monthly repayments. A revolving credit is also an option. The interest varies between 5% and 10%. It pays to compare online to find the cheapest credit provider.

Conclusion about the differences between a personal loan and a revolving credit

The personal loan and revolving credit are very popular types of loans that are often offered by Santander, Amstelgeld and Defam. Which loan suits you depends mainly on your wishes and your income. Compare the offers carefully, because this can save you money.

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