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Personal Loans

Is a Personal Loan an Installment or Revolving Credit?

Personal loans are considered installment credit rather than revolving credit because they involve borrowing a set amount of money and repaying it in regular installments over a predetermined period. 

Unlike revolving credit, which offers a line of credit to use repeatedly within a specific limit, personal loans are one-time transactions. Once you’ve repaid the funds on an installment loan, you can’t use the money again without applying for and getting a new loan. 

We’ll explore the distinction between installment and revolving credit, examining their unique characteristics, qualification criteria, repayment methods, and where to obtain them. You’ll also discover the advantages and disadvantages of each type of credit. Whether seeking a personal loan for specific purposes or considering the flexibility of revolving credit, we’ll share helpful insights to guide your financial choices.

How personal installment loans differ from revolving credit 

Installment credit is a type of loan in which a borrower receives a lump sum of money upfront and repays it over a set period through fixed, regular payments. Revolving credit allows borrowers to repeatedly borrow and repay the money up to a set limit.

Personal loans are considered installment credit because they provide borrowers with a fixed amount upfront, which they repay over time with fixed monthly payments. However, personal lines of credit are revolving, allowing borrowers to borrow and repay the funds as often as they wish.

Other examples of installment loans include auto loans, student loans, mortgages, and home equity loans. With these, you borrow a specific amount upfront and repay it over a predetermined period. 

Revolving credit examples include credit cards and home equity lines of credit (HELOCs), where you can borrow up to an established credit limit and repay it—and borrow again as needed.

Differences Installment loan 📅Revolving credit 🔄
Funds availabilitySingle lump sum upfrontBorrow up to a set credit limit and repay as needed
Repayment structureFixed monthly paymentsVariable payments based on outstanding balance
FlexibilityLimited repayment flexibilityFlexible borrowing and repayment options
ExamplesPersonal loans, auto loans, student loans, mortgages, home equity loansCredit cards, personal lines of credit, HELOCs

How installment personal loans work

Installment personal loans work by providing borrowers with a lump sum upfront. You repay the borrowed funds over a fixed term via regular monthly payments. 

For example, if you borrow $10,000 with a 3-year term at a 5% fixed interest rate, you’ll make 36 equal monthly payments of about $299.71 each. 

The interest rate on an installment loan tends to be fixed, so your rate won’t change even if rates go up on new loans. As with almost any type of credit, individuals with better credit will get the lowest rates


Once your interest rate is established on an installment loan, it won’t change, even if your credit improves, unless you get a new loan. So it’s ideal to get your credit in the best possible shape before applying for an installment loan.

Pros and cons

Here are the benefits and drawbacks of installment loans.


  • Predictable monthly payments make budgeting easier.

  • Fixed interest rates provide stability against rate fluctuations.


  • Less flexibility compared to revolving credit.

  • May have higher interest rates for some borrowers.

How revolving credit works

Revolving credit is different. It allows borrowers to access funds up to a determined limit as needed. You can use and repay the funds, which offers a high degree of flexibility.

For instance, let’s say you have a credit card with a $10,000 limit. If you spend $3,000 to cover your expenses and then repay $2,000, you’ll still owe $1,000, leaving you $9,000 in available credit to use. Once you’ve repaid the entire balance, you can access the total $10,000 credit limit again.

The interest rate on revolving credit is typically variable, meaning the rate will go up or down with changes in the economy and your credit score. This feature could be positive or negative because it can cause your rate to increase or decrease. 

Remember, the payments on revolving credit vary based on the outstanding balance, and you’ll only pay interest on borrowed funds. Even so, variable payments can make budgeting more difficult. If you use revolving credit, consider how you’ll repay the borrowed funds to avoid overspending.

Pro and cons

Here are the pros and cons of revolving credit.


  • Flexibility to borrow as needed.

  • Interest only accrues on the amount borrowed.


  • Variable interest rates may lead to unexpected costs.

  • Temptation to overspend and build debt.
    Which is better: an installment personal loan or revolving credit?

Which is better: an installment personal loan or revolving credit?

When deciding between an installment personal loan or revolving credit, assessing your financial needs and preferences is crucial. The one that’s right for you will depend on why you need the money, how you plan to repay it, and whether you need to use the funds more than once. 

Installment loans offer a lump sum with fixed monthly payments, suitable for specific purposes and easy budgeting. Revolving credit provides flexibility in borrowing and repayment, which is ideal for varying expenses and emergencies because you can use the funds repeatedly.

📅 Consider installment credit if you🔄 Consider revolving credit if you
Need a fixed amount for a specific purposeRequire flexibility in borrowing and repayment
Prefer predictable monthly paymentsWant to pay for emergency or ongoing costs
Want to avoid the temptation to overspendAre disciplined with your finances

Reasons to consider installment credit

  1. Fixed amount for specific purposes: If you have a set financial goal, such as paying off high-interest debt or financing a major purchase like a car or home renovation, an installment loan provides a lump sum you can repay over time with predictable monthly payments.
  2. Predictable monthly payments: Installment loans offer fixed interest rates and monthly payments, making budgeting easier and providing peace of mind. This stability can benefit those who prefer consistency in their financial planning.
  3. Avoid the temptation to overspend: With installment loans, you get a one-time lump sum, reducing the temptation to borrow and keep accumulating more debt. This structure can be helpful for individuals who struggle with impulse spending or managing revolving credit.

Reasons to consider revolving credit

  1. Flexibility in borrowing and repayment: Revolving credit, such as credit cards or lines of credit, offers the flexibility to access and repay funds as needed, up to a set credit limit. This can be advantageous for individuals with unpredictable or varying expenses.
  2. Emergency funds and ongoing expenses: Revolving credit can serve as a valuable resource for emergencies or ongoing expenses, providing quick access to funds without the need to apply for a new loan. This can be helpful for those who may encounter unforeseen funding needs.
  3. Financial discipline: Revolving credit provides an opportunity for those disciplined with their finances to manage variable expenses without overspending. If you use revolving credit, always put together a plan to repay the borrowed funds. 

How to get an installment personal loan

Getting an installment personal loan involves several vital steps to ensure a smooth borrowing process. The process includes assessing your financial situation, gathering the necessary documentation, researching potential lenders, submitting your application, and closing the loan.

To get an installment personal loan, you’ll follow these basic steps:

  1. Check your credit and evaluate your finances: Consider your creditworthiness by reviewing your credit report and income. You may be able to qualify without perfect credit, but you’ll always need to show you can afford to repay the loan. 
  2. Gather the necessary documents: Collect essential paperwork, such as proof of income, employment verification, recent bank statements, and personal identification. Having these documents ready will expedite the loan application process.
  3. Research different lenders: Explore various lending options, including banks, credit unions, and online lenders. Compare interest rates, fees, repayment terms, and customer reviews to find the most favorable lender for your needs.
  4. Submit your loan application: Complete the loan application process with accurate information and documentation. Be prepared to provide details about your job history, income, bank account balances, and any debt.
  5. Close the loan: Once your loan application is approved, review and be sure you understand the loan terms before signing the agreement. Ensure you’re comfortable with the interest rate, repayment schedule, fees, and any other terms outlined in the contract.

Securing an installment personal loan requires careful consideration and proactive steps for a successful borrowing experience. Remember to borrow responsibly, make on-time payments, and maintain a positive credit history. 

With proper planning and diligence, obtaining an installment personal loan can help you work toward your financial goals while managing your finances.

How to get a revolving personal line of credit 

Securing a revolving personal line of credit, like a personal line of credit, is similar to obtaining installment loans. You’ll start by assessing your finances and creditworthiness to determine eligibility. You can expect to need stable income to qualify and good credit to get the best rates.

Next, explore various lenders offering personal lines of credit, such as banks, credit unions, and online lenders. Compare interest rates, fees, and terms to identify the most suitable option for your needs.

Here’s a concise overview of the steps to obtain a revolving personal line of credit:

  1. Evaluate your financial situation and creditworthiness.
  2. Research lenders offering personal lines of credit.
  3. Submit your application for a personal line of credit.
  4. Await approval from the lender.
  5. Review the terms and finalize the line of credit.

Once you’ve selected a lender, submit your application for a personal line of credit. Be prepared to provide information about your income, employment status, job history, and debts.

After submitting your application, wait for lender approval. Approval times may vary, but lenders typically review your credit history, income stability, and debt-to-income ratio to determine eligibility.

If approved, review the terms and conditions of the personal line of credit before signing the agreement. Pay attention to the interest rate, credit limit, repayment schedule, and any fees associated with the line of credit.

With the line of credit established, you can use the funds up to your approved credit limit as needed. Remember to use the line of credit responsibly and make on-time payments to avoid accruing excessive debt and damaging your credit score.


How do payments differ on an installment loan vs. a revolving credit account?

If you take out an installment loan, you agree to repay it with a fixed number of payments over a designated period. The loan amount, interest rate, and monthly payment amount remain constant until the loan is repaid. 

Revolving credit accounts, such as a credit card or personal line of credit, don’t have a set end date or a predetermined number of payments. With revolving credit, you can borrow, repay, and borrow again up to your credit limit as long as the account remains open. 

The amount you owe and the payment due can vary depending on how much you use the account.

Does installment credit or revolving credit have higher interest rates?

Installment loans tend to have lower interest rates than revolving credit because of the fixed payments and straightforward structure, which lowers the risk for lenders. 

However, your credit score, personal financial situation, and the lender’s terms can affect the interest rates on both types of credit. Shop around and compare lenders to find the best rates for you.

What can a personal installment loan be used for?

You can use a personal installment loan for a wide range of purposes. Many people use them to consolidate high-interest debts, pay for significant expenses like home renovations or medical bills, or cover unexpected emergencies. Since you repay the loan in fixed monthly payments, it’s predictable and easy to budget for.

What can a revolving personal line of credit be used for?

A revolving line of credit also offers flexibility. It gives you ongoing access to funds up to your credit limit. You can use this type of credit for anything you wish, from covering day-to-day expenses and consolidating debts to tackling unanticipated costs. Remember, the interest accrues only on the funds you draw, not on the total credit limit. The bigger concern is managing ongoing borrowing due to the temptation to overspend.