Consumer credit has two basic categories which are Open-End and Closed-End credit. The former, or also known as revolving credit, can be used several times for purchases that should be paid back monthly though paying in full is not required. One of the most common forms of revolving credit is a credit card. Meanwhile, closed-end credit is used to finance a specific purpose for a specific period of time. Commonly known as for an installment loan, consumers are required to follow a regular payment schedule that includes interest charges until the principal loan has been paid off. Examples of closed-end credit include car loans, appliance loans, personal and payday loan.
A personal loan is an example of a closed-end credit that can be used for any kind of purpose which makes it an attractive option for people with outstanding debts, such as a credit card debt. Consolidated Loan as well is another kind which pays off all or several of your outstanding debts, like a credit card debt. This is to simplify finances by means of paying fewer monthly payments and lower interest rates. There also exists a kind of closed-end credit that is tied to the borrower’s property like an auto loan. Banks help you afford a vehicle but you risk losing the car if you miss payments. Lastly, a payday loan is designed to bridge the gap from one paycheck to the next but is usually short-term and has a high-interest rate. This kind of credit is usually discouraged but applicable laws are always in the favor of consumers to ensure protection against excessive interest rate imposed by some lenders or credit institution.
On the other hand, loans are not the only form of credit. Products or services provided by a supplier to an individual but does not require an immediate payment that can also be a form of credit.
At times when you ran out of cash and decides to borrow money, keep in mind that you need to understand the terms and agreement fully. Know what type of loan you are applying and whether it is tied to any of your belongings or can affect your credit score.