After 10 years of marriage, I’m still enjoying living in the first home I moved into with my husband. Buying a first home can be one of the most exciting events in a person’s life. Before making this important expenditure, people need to first sit down and determine how they will successfully finance it. After all, a home will likely be the most expensive purchase you make in your life. Talk to a loan officer and determine how much money you can reasonably borrow. Then, decide how much money you want to use as a down payment. You also must decide how many years you will finance your home for. On this blog, you will learn about the process of buying a first home with a loan.
You might buy expensive things from time to time, and if you do not save up for these purchases, you might have to use a credit card or a loan. Which one is better for a major purchase? Both options give you a way to buy something without having the money for it, but using an installment loan is often the better option. Here are some differences you should understand between installment loans and credit cards.
Understand the Classifications
If you compare credit cards to installment loans, you will find that a credit card has a different classification than an installment loan. A credit card is a revolving debt, whereas an installment loan is an installment debt.
A revolving debt is a line of credit where you have a spending limit. You can use the spending limit as you wish, and you can repay it as you want. You might owe a lot on it sometimes, and you might owe nothing on it at other times.
An installment debt is different. It is a debt where you borrow a specific amount and make payments on it. You know the number of payments you have, and the payment amount beforehand. You will pay it off by the due date and cannot reuse the loan again.
The Effects on Your Credit
If your credit score is essential to you, you may benefit from understanding the differences each option has on your credit. Increasing a balance on a credit card is never good for your credit. Owing balances on revolving debt increases your debt-utilization rate. The result of this is a drop in credit score. Adding an installment loan to your credit report may cause a slight decrease in your score, but this will not last long. Installment loans add to your credit mix, so getting one might cause your score to increase in the long run. Additionally, making payments on an installment loan builds your credit, so getting one offers a way to improve your credit.
The Benefits of an Installment Loan vs. a Credit Card
One of the top advantages of an installment loan is the schedule it provides. You know precisely how much you must pay each month and when you will pay off the debt. You do not know these things with credit card purchases.
Understanding the differences between credit cards and installment loans can help you see which is better. If you believe that an installment loan is the best choice for you, talk to a lender to find out how to apply for one.
For more information about installment loans, contact a company like Ardmore Finance.