Depending on your borrowing reputation, at any given time you will have access to credit. This is money that you can spend, provided by a lending institution like a bank, which you will have to pay back (sometimes with additional fees or interest).
When used effectively and intelligently, credit can be a useful lifeline in helping pay for an emergency, one-off payments. But over-reliance on credit that you can’t pay back will have negative consequences for your borrowing score and your financial stability, reducing the credit options and loans afforded to you at a later date.
These are the most common types of credit available to consumers in need of emergency funds.
Revolving Credit
Credit card options are just one example of revolving credit. Revolving credit grants you access to credit up to a certain amount, known as a credit limit. You then receive a statement each month detailing your credit balance, which keeps rolling until the credit is paid off in full.
This is exactly how credit cards work. You can pay off the balance, then use the credit again as many times as you want. This form of credit is often called unsecured credit because as the borrower, you don’t have to put any possessions up as collateral to get access to the credit.
Non installment Credit
Non-installment credit is usually used for one-off purchases. The borrower gains access to credit for a short period of time, which may be around 30 days, after which time the credit must be paid off in full. It does not roll over like revolving credit.
Non-installment credit is most often granted to customers at stores. The department store may allow a customer to make purchases and pay for them at a later date. Non-installment credit is a useful tool if you need something from a specific store and are certain you will have the funds to pay off the balance within the agreed timeframe.
Installment Credit
Installment credit is often taken out when consumers purchase one, high-value product. For example, you may purchase a car and have to pay it off over the course of 12 monthly installments of equal value.
With installment credit, consumers get the item they need immediately, providing they make the set monthly repayments each month, the item is theirs. However, should they fall behind on the repayments, the purchase is repossessed.
Home mortgages would fall under this category, as the terms dictate that the homeowner must make equal monthly repayments for the predetermined period of time. Should the owner fall behind on their mortgage repayments, the bank is able to repossess the property.
Service Credit
Service credit is similar to non-installment credit in the sense that borrowers must pay the full balance off before the deadline. However, service credit is usually attributed to the purchase of services.
For example, when a tenant moves into a new property, they are not obliged to make a payment to have the electricity, gas, and water turned on. The electrical company and water company extends service credit to that consumer. Providing they pay their bill before the due date, they receive uninterrupted access to the services these utility companies provide.
