What types of credit are there and when do I choose what?
The best known forms of credit or types of loans are the revolving credit and the personal loan. But there are more forms of credit that you can choose from. We give you a summary of the various types of credit and additional information about the three most famous types of credit.
There are different types of credit:
- Revolving credit. You can unlimited withdrawals and repayments up to an agreed amount.
- Personal loan. You borrow a fixed amount at a fixed interest rate and duration.
- Credit card. You can make purchases up to an agreed amount that are written to your checking account at the end of the month.
- Mortgage loan. A loan for the purchase of a house.
- Securities credit. A loan where your investments serve as collateral.
- Subordinated loan. Loan repaid if other creditors are paid.
- Bridging loan. Loan for when you are moving and you have not sold the old home yet. With the money you already buy your new home.
- Flash credit. Loan that you must repay within three months.
We will briefly explain the three most important forms of credit below:
Credit form – Revolving credit
A revolving credit is a form of credit that is particularly suitable if you want to have some extra money for a longer period. With a revolving credit you agree a limit with the lender in advance. Up to that amount you can withdraw and redeem unlimited money. You can continue to do this continuously. So discipline is needed to eventually pay off the loan completely and not to take up amounts again. Furthermore, the interest rate of a revolving credit is variable. This means that interest rates can rise or fall in the meantime.
Credit type – Personal loan
A personal loan is especially suitable if you borrow for a specific purpose, such as a car or a new kitchen. You borrow a fixed amount at a fixed interest rate and you know exactly in how many months you will pay off the loan. The costs are fixed in advance and the interest is currently even lower than with a revolving credit.
Credit forms – Credit card
You probably use a credit card mainly to help pay for purchases on the internet or abroad. Purchases made with a credit card are only debited from your checking account afterwards (usually at the end of the month). This makes your credit card actually a form of credit. In principle, you do not pay interest, but you pay a fixed monthly or annual amount.
It is important that there is enough money in your bank account when the credit card payments are debited. If you cannot repay everything, the outstanding amount becomes a loan. Then you do pay interest. And this is considerably higher than with a revolving credit or a personal loan.
Take out a cheap loan? Then compare not only on interest, but certainly also on conditions. The more favorable the conditions, the cheaper the loan.