When you need to borrow money to cover big expenses and create more financial flexibility for yourself, it can make a lot of sense to seek out loans or credit that enable your financial goals. These loans typically fall into one of two broad categories: revolving credit, and installment loans.
If you’re trying to decide which type of loan is the best fit for your current needs, read on for a breakdown of the differences, benefits, and limitations of each financial product.
Revolving debt is a kind of credit that lets you borrow money within a set limit. In exchange for access to this credit, consumers pay interest on the amounts they borrow. Revolving accounts typically charge a variable interest rate, and require a lower minimum payment than other types of loan products.
The most common example of a revolving loan are consumer credit cards. With credit cards, you make charges that get deducted from your available credit. If you carry over a balance on those cards, the loaned balance is charged an interest rate. While consumers are required to make a minimum payment on that account, it’s typically recommended that you pay off this borrowed credit fast to minimize interest fees.
Unlike other loan types, where repaid balances are closed out, you can immediately re-use your revolving credit as soon as you pay it off.
Compared to revolving loans, installment loans are much more structured. When you decide to seek out a loan, you will apply for a set amount with a specific purpose in mind. The lender will either approve or deny you, and you may be presented with different interest rates and repayment terms to choose from.
When you select an installment loan, you will then receive a set amount of funding and be bound to the repayment terms outlined in the lending agreement. This means making a set payment on a regular schedule—typically monthly—for the duration of the repayment period. This is typically used as a financial tool for affording large purchases when you lack the available cash to cover the costs.
One of the more recent advantages of installment buying is that consumers now have installment loan options to cover smaller consumer purchases, spreading out these costs over time to increase consumer purchasing power.
Whether you’re looking for loan options that can help you rebuild credit, or simply looking for the loan product that best suits your needs, it’s important to understand the key differences between installment and revolving credit, including the benefits and limitations they offer. Here’s a basic breakdown:
If you’re looking to rebuild your credit score, or you simply need access to loaned funds now and you don’t have a great credit score to work with, you might seek out special monthly installment loans for bad credit. These loan products can vary from installment loans offered by lenders who work with consumers with bad credit, to secured installment loans for credit score repair.
With a secured installment loan, a lender will issue a loan to the borrower but only release funds as payments have been made on the balance. While this loan product doesn’t give you access to an influx of cash at the start of the loan approval, it does give consumers a chance to prove their credit-worthiness, strengthen their credit history, and increase their odds of qualifying for an installment loan in the future.
