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Understanding different types of loan payments can be incredibly useful when you need financial help, whether considering various payday loans to cover unexpected expenses or loans to finance a significant investment. Read on for an overview of three common loan payment options and how they apply to certain loans.
1. Single payment
As the name suggests, loans with a single payment method allow borrowers to make one lump-sum payment, typically on their next payday, to cover the cost of the loan. Single-payment loans are convenient for immediate needs, such as expenses you didn’t plan for. A payday loan is an example of a financial tool with this repayment method.
The benefit of a single-payment loan is that you can typically access cash quickly and easily and don’t have to worry about monthly payments — just one amount that’s due all at once. Plus, since it’s a short-term loan with less strict credit score requirements, there’s often minimal paperwork, and it’s easy to get approved. But it’s important to note that these loans may come with higher fees if you can’t pay them off on time.
2. Installment payments
Installment loans are unsecured loans that allow you to borrow a set amount with the flexibility of longer or shorter repayment terms. You’ll make fixed payments each month for the agreed-upon period until you pay the loan off.
Fixed payments and set timelines make installment loans easier to budget for. And installment loans can give borrowers a sense of security in knowing exactly how much they’ll owe monthly with a clear and reasonable payoff date.
Borrowers often use installment loans for larger purchases, including mortgages for buying a home, auto loans for getting a car, and student loans for financing college. Installment loans usually include a fixed interest rate based on credit history and income factors. As long as you make payments on time and in full, an installment loan can be an excellent way to finance your next big purchase.
3. Revolving credit payments
Revolving credit allows you to borrow against a predetermined limit, and as you pay back your balance, those funds become available again for future borrowing. Each credit issuer applies their own terms to revolving credit repayment, but revolving payments don’t generally include a fixed monthly amount, unlike other loan repayments. Instead, your monthly payment is typically a percentage of what you borrow plus applicable interest. Revolving credit is an excellent financing option for those who use credit responsibly and need financial flexibility without being locked into a specific plan or payment amount.
Common examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit (HELOCs), which borrowers use for various expenses, from bills to home repairs.
The bottom line
No matter your loan type, it’s essential to understand all the terms and conditions before signing on the dotted line. And knowing these three types of payments can help you make an informed decision about the option that most suits your situation.