Education on Personal Loans

Are personal loans installment or revolving credit accounts?

December 1st, 2022 Dec 1, 2022 • Read time: 5 min

Are personal loans installment or revolving credit

What type of loan is a personal loan? Simply put, a personal loan is an installment loan. If you are interested in borrowing money, it’s important that you research all of your options and weigh their pros and cons before making a decision. One thing you will need to consider is whether to opt for an installment loan or revolving credit account. Differences in the ways that cash flow, fees, and interest are handled will all factor into whether an installment loan or revolving credit account is the right choice for your personal situation. So, to help you make the best, most well-informed decision, let’s dig into the differences between installment credit and revolving credit.

What is the difference between installment credit and revolving credit?

Installment credit is a type of loan that provides the borrower with a lump sum of money – this money is then paid back in fixed and scheduled payments over a specific period of time. Revolving credit is an open-ended type of loan that allows the borrower to borrow money, pay it back, and borrow money again. 

Some common forms of installment credit are personal loans, student loans, auto loans, and mortgages – you receive a finite amount of money upfront, and then pay this money back over a specified period of time. 

Credit cards and lines of credit are examples of revolving credit – you have a certain, maximum amount of credit that is available to you to use each month, and you can choose to use as little or as much of it as you would like. If the full balance on a revolving credit account isn’t paid off at the end of the month, the remaining balance carries over to the next month and lowers the total amount of credit that is available to you.

What is installment credit?

Installment credit allows you to have a sum of money available to you all at once when you take out the loan. With an installment loan, you know exactly how much money you are expected to pay back each month, and how long it will take you to repay the full loan amount if you stay on top of payments. Because all this information is determined ahead of time, you can budget for this flat, monthly payment amount. 

From a cash flow perspective, personal loans can be helpful for funding large one-time purchases because all funds are available at once. Installment loans may come with an origination fee at the time of the loan – this is money that you must pay in order to then receive the loan amount. Additionally, if you don’t make your monthly loan payments on time, you may have to pay late fees. Aside from these potential fees, your monthly payment will consist of a portion of the original loan amount plus an extra percentage based on the interest rate for the loan. 

Are auto loans installment or revolving credit?

Auto loans are a type of installment loan – they can provide you with a lump of money to cover some or all of a vehicle purchase, and then allow you to pay that money back slowly over the course of months or years.

Is a student loan installment or revolving credit?

A student loan is an installment loan – you apply for a loan amount that will cover your tuition and/or other expenses for a significant period of time, receive that money all at once, and then make regular payments in order to pay that sum back over many months or years.

What is revolving credit?

Revolving credit allows you to borrow a certain amount of money each month – this is called your credit limit. Every time you buy something, your available amount of credit goes down, and whenever you pay off part or all of your credit balance, your available amount of credit goes up. It’s up to you how much of your credit limit you decide to use. Unlike installment credit, revolving credit doesn’t provide you with a sum of money – it provides you with the opportunity to borrow varying amounts of money each month if you choose to. For instance, if you have a credit card and it has a credit limit of $1000, it’s up to you whether you would like to borrow $100, $900, or $0. 

From a cash flow perspective, revolving credit can be helpful for making everyday purchases and offer flexibility since the amount of credit you use can freely vary from one month to the next. Revolving credit accounts may come with a higher rate of interest than installment loans do. If you fail to make payments on time, you will be penalized with late fees – and depending on the balance on your account, the minimum required payment on the account may change from month to month. 

Is a credit card installment or revolving credit?

A credit card is a type of revolving credit – you have a maximum amount of money that you can charge to your credit card, and you can continue to borrow and pay back this amount on an open-ended basis. 

Installment loan vs revolving credit

In summary, here are the main differences between installment credit and revolving credit. Keep this chart handy when deciding which type of borrowing is a better fit for you. 

Installment creditRevolving credit
Allows you to borrow money in a single lump sumAllows you to borrow different quantities of money on a monthly basis
Money is typically used to fund a specific purchase Frequently has a higher rate of interest
Loan has a fixed payment size, rate of interest, and duration of paymentsPayment size and interest due vary each month based on how much money has been borrowed 
Loan has finite start and end dateLoan is open-ended

Find a personal loan that works for you

If you feel that an installment loan is the right choice for your situation, we’re here to answer all your questions and walk you through the personal loan application process. Get in touch with Sun Loan today!

Author – Amy Sines

Amy Sines is Vice President of Operations Support at Brundage Management Company, the management holding company for Sun Loan. She brings two and a half decades of experience in the consumer loan indu... Read more »

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