{"id":20545,"date":"2024-05-07T13:35:00","date_gmt":"2024-05-07T19:35:00","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=20545"},"modified":"2024-05-07T13:36:41","modified_gmt":"2024-05-07T19:36:41","slug":"revolving-credit-vs-installment-credit","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-101\/revolving-credit-vs-installment-credit.html","title":{"rendered":"Revolving credit vs. installment loans: differences explained"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. <\/em>See Lexington Law\u2019s editorial disclosure for more information.<\/em><\/a><\/p>\n\n\n\n

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Revolving credit, like credit cards, allows you to borrow up to your limit and then again once you pay down the outstanding balance. Home, auto and personal loans are installment loans, which means you receive a lump sum that you pay back over a set period.<\/h2>\n<\/div>\n\n\n\n

If you\u2019re one of the millions of Americans who has outstanding debt, it can be helpful to better understand the difference between installment loans vs. revolving credit. Although debt can harm your credit, responsibly managing a mix of installment and revolving debt can help build your credit<\/a>. Read on to learn more about installment loans vs. revolving credit and how to use them to your benefit.<\/p>\n\n\n\n\n \n \n \n \n \n \n \n
<\/th>\n Installment debt<\/th>\n Revolving credit<\/th>\n <\/tr>\n
Definition<\/td>\n A borrowed lump sum that is paid back over time on a set schedule<\/td>\n A line of credit that enables for spending up to a predetermined limit\n\n<\/td>\n \n <\/tr>\n
Examples<\/td>\n Mortgage, student loan, auto loan or personal loan\n\n<\/td>\n Credit cards and personal lines of credit\n\n<\/td>\n \n <\/tr>\n
Interest rates<\/td>\n Typically fixed when the loan is established\n\n<\/td>\n Usually variable, and often higher overall\n\n<\/td>\n \n <\/tr>\n
Payments<\/td>\n Consistent monthly payments on a set schedule\n\n<\/td>\n Payments vary based on spending\n\n<\/td>\n \n <\/tr>\n
Effect on credit score<\/td>\n May increase credit score due to improved mix of credit, payment history and length of credit\n\n<\/td>\n Tends to have a larger effect on credit score, and score increases are possible with responsible usage\n\n<\/td>\n <\/tr>\n<\/table>\n\n\n\n

What is revolving credit?<\/h2>\n\n\n\n

Revolving credit allows you to spend up to a certain limit. As you pay down your outstanding balance each month, you can re-borrow up to the credit limit. If you need to borrow more, you can request a credit limit increase<\/a>. It not only gives you access to more funds, but when used responsibly, it can also help improve your credit by reducing your credit utilization ratio.<\/p>\n\n\n\n

When you have a revolving credit account, you can pay the monthly minimum or choose to pay more. Many lenders charge interest, but some lines of credit come with introductory offers, like 0 percent interest for a certain amount of time.<\/p>\n\n\n\n

One way revolving credit is different from installment credit is that your account stays open until you close it. As you continue to make your payments and don\u2019t spend more than the limit, you can continue to use your revolving credit.<\/p>\n\n\n\n

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<\/a>Pros and cons of revolving credit<\/h3>\n\n\n\n

The biggest benefit of revolving credit is its flexibility, which can also be a downside. You can borrow up to your credit limit, but the ability to increase it may tempt you to overspend and get into debt. Below, we break down some of the additional pros and cons, starting with the benefits:<\/p>\n\n\n\n