The personal loan is the simplest form of borrowing money. An amount can be withdrawn at once. This loan will be repaid within a predetermined period. This term varies from 6 to 60 months (longer terms are often possible in case of renovations, for example). A personal loan is taken out with a one-off credit requirement. Interest is charged on the loan amount. This interest is added to the amount financed and the total amount must be repaid in fixed installments. The interest and monthly repayments are therefore fixed. If a term of longer than 60 months is determined, it is usual that the interest rate is revised after 5 years.
The main advantage of a personal loan is that the monthly installments to be paid are fixed. So you know where you stand. In line with this, the debt is repaid at the end of the term, which can also be a good idea.
The main disadvantage of the personal loan is its rigidity: it is virtually impossible to 'borrow' within the same loan. A sudden need for extra money can therefore not or hardly be met. In that case, a new loan must be taken out. Another disadvantage is that early repayment is generally fined, as the lender loses interest over the remaining term. The amount of this loss of interest depends on the time at which the early repayment takes place. The sooner, the more expensive is the credo here.
A revolving credit, also called continuous credit, is, in addition to the personal loan, a form of financing that is chosen when extra spending space is needed for a longer period of time. The exact spending limit is not known in advance. This occurs, for example, if a renovation has to take place or if the house is being refurbished. A credit limit is agreed based on your income and other financial obligations. Free withdrawal and redemption are possible up to the agreed limit. You only pay interest on the outstanding balance. The level of the interest depends on the credit limit for most providers of revolving credit. The higher the limit, the lower the interest to be paid. The amount of the interest can change in the meantime. The monthly repayment, regardless of the amount withdrawn, is usually a fixed percentage (2%) of the credit limit. With some lenders, a variable percentage can also be chosen. Because the duration is not fixed in advance, you can determine how long the repayment lasts. This means that every time - after a repayment, or if the limit has not yet been reached - money can be withdrawn again. It is less wise to take a revolving credit for buying things with a limited life. A personal loan is then a more suitable form of financing. With a revolving credit, the financing of your car, for example, quickly continues for longer than the period that you use the car.
The advantage of a revolving credit is mainly the flexibility, because it can be repaid and withdrawn each time (provided you stay within the agreed limit). In addition, a revolving credit offers convenience, especially when expenses are staggered over time. You do not have to take out a new loan every time. Another factor is that the monthly costs are lower than with a personal loan, because the term is longer (indefinite).
However, these advantages can also be a significant disadvantage: flexibility and convenience require a certain repayment discipline. Those who do not have one run the risk of never getting rid of the credit. In addition, the interest on the revolving credit is often variable and the costs for the relevant loan can become both higher and lower as a result of developments in the money and capital markets.
With a current account credit, a lender grants permission to be 'red' on a payment account up to a certain amount. The lender will of course check in advance whether your income is sufficient for the amount. Here too, nothing has to be repaid, because a current account credit requires collateral. Usually, securities and savings certificates are used as collateral.
The advantages of the overdraft facility lie in flexibility (as with revolving credit), but also in costs. These are generally lower than with a revolving credit or a personal loan. Because the credit is linked to a current account, the advantage is that the funds are available at all times (provided the limit has not been reached). Usually a minimum mandatory repayment, such as with revolving credit, is not mandatory.
However, just as with revolving credit, the advantages can also form a significant disadvantage with this form: due to the flexibility and convenience, a certain repayment discipline is required. Those who do not have one run the risk of never getting rid of the credit. If the limit of the current account credit is exceeded, there is an unauthorized overdraft, the costs that are charged for this are higher than the usual interest rate.