There are many different types of credit that are available for people who want to finance purchases of all kinds. Here are some ways that you can borrow money, depending on your needs and credit history.
Credit and Charge Cards
Although many people use the terms interchangeably, credit cards and charge cards are really two different things. You can make purchases with both whenever you desire, and you need to be approved for both. The difference lies in the way that payments are calculated.
Charge cards (American Express is one example) must be paid off each month. You can charge whatever amount you want, but you do not have the option to only pay part of the bill; you must pay the whole balance when the payment is due.
With credit cards (MasterCard and Visa, for example), you have the option of either paying them off each month, paying only the minimum amount due, or paying an amount in between the minimum amount due and the entire balance. You will be charged interest on the amount that you don’t pay off each month.
Department store cards are similar to regular credit cards, in that you may choose to pay or not pay the entire balance each month, but they tend to have higher interest rates. If you do not qualify for a major credit card, you might have better luck applying for a department store credit card. These cards can normally only be used at the store that they are issued from.
Personal loans are loans given by a bank or financial institution in order to make a large purchase or to consolidate other debt. Many people use personal loans to pay for cars. You get the money as a lump sum, and you cannot borrow additional amounts on the same loan. Your payment, including interest, is the same each month, and there is a set time that the loan will be paid off. With most personal loans, you are able to pay more than your monthly payment in order to pay the loan off more quickly.
A mortgage is usually a large amount of money loaned by a bank or mortgage company in order to purchase a house or other property. Like a personal loan, the monthly payment includes interest. Many mortgages also include homeowners’ insurance and taxes for the property that you are buying. Fixed rate mortgages keep the same interest rate throughout the life of the loan (usually 15, 20, or 30 years), while adjustable rate mortgages fluctuate. Some mortgages are fixed for a certain amount of time and then change into an adjustable rate after that time period.
Payday loans are available to most people, even those with bad credit. In this type of loan, the amount borrowed is usually fairly small, and is only enough to get the borrower through until his or her next payday, when they must pay the loan back. The interest rates are normally much higher than other kinds of loans, and these should only be used in the case of an emergency, if at all.
You should choose the type of loan or credit that you apply for carefully, taking in to consideration what you are purchasing, how much expendable money you have each month, and what interest rate is being offered to you. You can speak to a bank representative or credit counselor to find the right type of credit for your needs.