In short, a loan is money that you borrow. While there are lots of different loans (i.e. auto loans, home loans/mortgages, credit cards, and more), there are two basic types of credit — installment and revolving credit.

What is installment credit?

Installment credit accounts allow you to borrow a lump sum of money. The money you borrow is then paid back in fixed amounts or "installments" typically on a monthly basis. Additionally, once your loan is paid in full, it's closed.

Types of installment credit/loans include:

• Home loans/Mortgages that cover the purchase or refinance of a home.
• Auto loans that fund the cost of a new or used car.
• Student loans that fund the cost of education, tuition, room, and board.
• Personal loans that can cover the cost of a new laptop, pay for medical bills, travel expenses, etc.

What is revolving credit?

Revolving credit accounts give you access to an ongoing line of credit. Meaning, you can borrow funds as needed as long as you don't exceed your credit limit. At the end of each billing cycle, you're required to make a minimum payment towards your account. It's recommended that you pay more or pay the balance you owe in-full, otherwise you're subject to interest charges. Unlike installment credit, when you pay off your balance on your revolving credit account, the account remains open for you to continue drawing funds as needed.

Types of revolving credit include:
 

• Credit cards are the most common type of revolving credit. Credit cards can be used to cover your daily expenses, a large purchase, or emergency expenses. Some credit accounts will also offer rewards or other additional perks.
• Personal lines of credit function similarly to credit cards. However, how you access the funds is different. Funds or personal lines of credit are typically accessed by writing special checks, calling your lender, or stopping by your credit union to draw the funds from your account.
• Home equity lines of credit (HELOCs) accounts allow you to borrow against the value of your home. HELOCs are typically used to fund home repairs or renovations, but they can be used for other expenses as well.

What should you consider when you apply for a loan?

Just like you've shopped around for the type of car you want, you should also shop around for the right loan for you. A unique benefit of being a member of a credit union, like Members First Credit Union of Florida, is that credit unions typically offer better rates and terms on loans than banks and other lenders do. Additionally, your credit union will work with you to better educate you about the loan process and help you qualify for a loan later if you don't qualify for one now.

While you're shopping around, consider the following:

• Loan amount - What is the total dollar amount for the loan?
• Interest rate - What is the interest rate of the loan?
• Loan term - What is the number of years over which you will repay the loan?
• Monthly loan payment - What is the monthly principal and interest payment (PI)?
• Annual percentage rate - What is the Annual percentage rate or APR?
  The APR is a standard calculation used by lenders. It's designed to help you compare different loan options. For example, a loan that has a lower stated interest rate might not be a good deal if it comes with high fees. But, a loan with a higher stated rate but minimal fees may offer a better value. APR calculations combine these fees into a single comprehensive rate, allowing you to compare loans with varying fees, rates, or terms more effectively.

Once you have the information you need, compare it so you can make a decision that's right for you.