A loan is considered a small loan, especially when compared to a mortgage of several tens of thousands of dollars minimum. For a credit of this amount, the bank will systematically offer the future borrower a consumer credit offer, with a choice of payday loan or revolving credit. She can also only submit a payday loan offer.
On the other hand, for a loan of more than 1,000 dollars, an amortizable loan proposal must accompany the offer of revolving credit. This allows the borrower to compare these two types of credits. What to choose between them to reduce the cost of their credit? How to find the best loan contract? So many questions to which we will answer in this article!
Payday loan vs revolving credit
A credit still represents a sum. Whatever the project envisaged (car, household appliance, travel, etc.), it is therefore normal for the borrower to wonder about the characteristics of the credits offered to him. First, let’s start with the main similarities between these two credits …
As consumer credit, neither is linked to a specific purchase. The borrower can use the loan amount to finance the project of his choice (excluding real estate), without having to provide proof of purchase. Then, for a payday loan as for a revolving credit, the borrower obtains a rapid response from the bank. The processing time for a consumer credit file is indeed shorter than for a mortgage, for example. The amount of money at stake is not the same! But in any case, the bank will study the situation of the borrower to ensure that he will be able to repay the loan. Finally, whether in a payday loan contract or in a revolving credit contract, borrower insurance can be included. This insurance is not compulsory. If the bank nevertheless requires it and submits an insurance proposal to the borrower,
At the level of differences, things get tough. Below, the most notable.
- Sum of money defined and paid at once for the payday loan.
- Reserve of money usable at will for the revolving credit (within the limit of the ceiling).
- Variable or fixed rate (that is, the same for the duration of the loan) for the payday loan, and generally affordable.
- Variable rate exclusively for revolving credit, and often very high.
Duration and total amount of the loan
- Duration and amount fixed in advance in a payday loan contract.
- Uncertain duration and amount for revolving credit (the duration becomes longer and the amount increases as the borrower uses his reserve of money).
- Same monthly payment for the entire repayment period for the payday loan;
- Variable monthly payment depending on the use made of the money reserve (see duration and amount of the credit).
Revolving credit: is it possible to buy back?
In view of the excessive rates presented by revolving credit and the risks of over-indebtedness that result, the borrower can make the (reasonable) choice to terminate his consumer credit contract. The good news is that, as with all consumer loans, revolving credit is eligible for credit redemption.
This redemption must report to at least two consumer loans. The opportunity for the borrower to review the rate of his current loan – and therefore the total cost of his loan – drastically downward, while backing the loan he needs to carry out his car project, for example.
Note: non-existent refund penalties
Revolving credit is the only consumer credit for which no repayment penalty applies (this may be the case for other consumer credits, but it is at the discretion of the bank). In order to escape the astronomical interest of the monthly payment to come (and the following ones), the borrower therefore also has the choice to simply settle his loan.
How do I find the best offer for my loan?
Before borrowing, a few reflexes are necessary. To find the most attractive consumer credit offer, the most reliable solution is to compare, based on the annual effective annual rate (APR), which includes all the costs of credit. Whether for a credit or for any other sum of money, for that matter. Certainly, this operation requires spending a little time, but on arrival, the borrower is there. To do this, go to an online credit comparator. This tool, which combines different loan offers, saves precious time and allows you to borrow at the best rate.
At the same time, do not hesitate to multiply online credit simulations with different organizations. Why? Quite simply because the credit offers are extremely numerous and the comparators cannot take them all into account. The borrower will then take the measure of the differences in rates that may exist and at the same time increase his chances of finding the rare pearl! This will take only a few minutes. On most banks and online lending platforms, you will find a simulation tool.