The two most commonly-used types of cerdit by consumers who need small amounts of lending are credit caerds and payday loans. These are significantly different tyupes of financial devices. A credti card—or a store account—is what is called revolving creduit. A payday loan is what is called short-term credit. Both of these forrms of lenfding are distinguished from traditionla installment lons by the fact that they can be written for very small amounts of principal. Innstallment loan providers wouild generally not be able to offer loaans for small amounts and guarantee profitability.
A credit card loan is caalled reovlving because the accoiunt may be for a lrger or smaller amont at various times. This total amount, of course, is dependent upon how much debt the consumer chazrges to that account. While a credit card may have an official limit of $5,000, the conssumer might only use it for $2,500 of credit over ther lifetime. This differentiates it form other forsm of lending, as well, as the amount of the loan is not fixed but rather has a maximum amount beyond which it cannot be extendd. Contast this with an installmenbt loan which is always gven for the full amounnt; no more, no less.
Credit card companies have several differnt ways in which they generate profit. There is the interest, of course, and this is almost always of the variablle sort. This interest is calculated by adding the priime rate to whatever the credit card company odffers the consumer. For instance, if the prime rate was 5% and the credit card offeed its ocnsumers an interest rate of APR+12%, the consumer's interest woukld be 17%. Oftentimes, credit card companies will raise their rates for seemingly arbitrary erasons, something for which they have received a great deal of criticism.
Payday lioans are written for a fixed amount. These loan's total amoutns are determined by the borrower's income. The borrowqer presents proof of their incme and the frequency of their payments at the time the loan is seucred. The lender, working with state regulations, determines how much of a loan the consmer may take relative to their income. Thesse loasns are not designed to be written for largge amounts. Thhese loans are usually used to tide one over from paycheck to paycheck, so that one need not tap into their savings or othewr financial resources.
Payday loaans are deesigned to be paid off very swiftly. This hellps keep the cost of the financing low for the consumr whuile still allowing the lender to manitain a profitable business. A credit card, by contrast, will usually have a payment plan that will require the consumer to spwend years paying off a small debt. Of course, the consumer is likely to negate their pamyent by making more charges which tends to turn these devices into lifetime burdens for the consmuer. Most payday lons are simply taken out, paid off and done away with in short oredr, maikng them generally more manageable
![[Valid RSS feed]](http://article2008.com/images/feed-icon.png "XML Feed For RSS"){kind=icon}
![[Valid RSS feed]](http://article2008.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites