Has your savings account thinned out considerably recently? And are you now forced to make a major expense (again)? Then you may be short of money. In that case, borrowing money is an excellent solution. But this must be done responsibly, of course. Usually you get the choice between a personal loan or revolving credit. While almost all of us have heard these terms at least once, few people really know the difference between the two. How do you make the right decision? And how do you make sure you don't cut yourself off financially?
Borrowing responsibly is how you do it
Borrowing money is still somewhat of a taboo subject. Most people have grown up with the idea that borrowing is bad. However, nothing could be further from the truth. Borrowing does indeed cost money. It is cheaper to save for yourself. Provided it is done responsibly, there is nothing against it. But it is important to make the right decisions.
Fortunately, lenders are already helping tremendously with this. For example, you can't borrow an unlimited amount of what you want. Based on your monthly income and expenses, they calculate the maximum amount you can borrow. This way you know for sure that you can also pay everything back and that you don't risk getting into trouble.
We like to think of borrowing as reverse saving. If you have a big savings goal, you will put away a monthly amount to achieve it. With borrowing, this goes the same way. Only then you will have the amount in your account sooner and then pay back parts of it yourself. In other words, reverse savings.
Consider carefully whether you really want to grab the maximum loan. If the lender has determined that this is your absolute maximum, it also means that there is very little further slack. Therefore, it may be nicer to borrow a little less than the maximum.
Differences between a personal loan and revolving credit
A personal loan is a loan where everything is fixed. This gives you a lot of extra security. The interest rate is fixed, the term is fixed and you know exactly how much you are going to pay monthly in principal and interest. This gives a lot of extra peace of mind. Moreover, this is a very good option for people who know they are having trouble making their loan payments on time. Now they have a good stick to keep themselves from getting into debt. With a personal loan, however, it is important that you know in advance how much money you need.
A revolving credit gives much more flexibility. You determine the limit together with the lender. This depends on your income. You also discuss what monthly repayments and interest will be paid. Furthermore, you get to decide how much you withdraw. Even after repayment you can withdraw again. The interest rates for revolving loans are not fixed and are usually higher than for personal loans.