The choice between a revolving credit and a personal loan must depend on several factors, including the nature of the project to be financed. However, what is the difference between these two types of consumer loans? How to choose between these two formulas?
Personal loan and revolving loan: what is the difference?
The revolving credit and the personal loan are both subject to the legislation that governs consumer credit granted to individuals. If these two formulas have in common to offer a great freedom to those who contract them, it is necessary to know that major differences exist between these two types of consumer loans.
Namely that the personal loan is fully paid as soon as the borrower finished paying all of the outstanding capital and ancillary costs of the credit (fees, insurance premiums, interest …). The personal loan agreement is extinguished with the last repayment. Thus, if the borrower wishes to finance a new project, he must again apply for consumer finance.
In the case of a revolving credit, a sum (money reserve) remains available even if the borrower fully reconstitutes the borrowed capital with the payment of the installments. A revolving credit agreement may remain open indefinitely.
How to choose between these two forms of loan conso?
Namely that the personal loan is intended to finance mainly a well-defined project. The amount and the terms of the credit are fixed as soon as the contract is signed. This formula is best suited to buy a car, finance a trip, do some work …
The revolving credit, on the other hand, makes it possible to have a sum of money initially defined with the lending institution so that the borrower can use it when he feels the need. This is a sum of money available at any time. It is mainly intended for daily or occasional expenses.
Therefore, the choice between these two formulas must mainly depend on the nature of the project to be financed, but also on the amount to be borrowed since the sum borrowed is generally larger for a personal loan than for a revolving credit.
In addition to the amount needed to finance one’s projects, the choice may also depend on consumption habits. A person who plans his projects well in advance must logically opt for a personal loan while a revolving credit will suit a person who likes to seize the opportunities that arise.
Both formulas are eligible for the consumer credit consolidation
Namely that the consolidation of consumer credit is a banking operation that allows to gather several credits of various kinds in one single loan. To reduce a borrower’s monthly payments, to reorganize his finances in a sustainable manner, to protect him, or to simplify the management of his finances with only one adapted monthly payment, the purchase of consumer credit concerns personal loans as well as renewable credits subject to eligibility.
Moreover, since the Lagarde law of 2010, it is imposed on banks to systematically offer a personal loan as an alternative to any request for a revolving loan greater than 1,000 USD. As a result, it is possible at any time to prepay a revolving credit and substitute a personal loan through a consolidation of consumer loans.