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What is a personal loan?

Or rather, what is exactly the difference between a (normal) personal loan and a revolving credit?

An personal loan is a agreed upon amount of money that you can borrow from a bank, credit union or some other (online) lender. The borrowed money must be repaid over time with interest (and sometimes there are other fees that you must pay). When you apply for a personal loan it is common that you state how much money you want to loan, when the loan is paid back and for how much interest it will be. You usually pay the money back in monthly installments. Most people take out a personal loan to pay for something big (for which they do not have the money to pay it all at once) like some renovations to the house they live in, a wedding or buying a boat. Sometimes there are some rules about on what to spend the money on: for example a bank might only give you the loan if you want to use it to pay for school or home renovation, but not if you want to use it to buy a boat. Usually this is discussed while applying for the loan.

With a revolving credit (also known as revolving loan), it is a bit different. With this type of loan you do not know exactly how much money you need (want to loan) or for how long you need it. This type of loan is typically used for people who want to have money whenever they need it (when the car breaks down and needs big repairs, or for when the washing machine suddenly stops working). Just the state of mind that you can always get the money to repair these items or buy a new one.


Afbeelding van Nattanan Kanchanaprat via Pixabay

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