At a Glance

If you’ve been looking into personal loan and financing options, you may have come across the terms “installment” and “revolving” credit. While both types of credit provide funds you have access to for spending, installment and revolving credit have several differences such as how you receive the funds, how you repay the funds, and how you qualify.

Personal loans are a type of installment credit, but knowing the differences between the two types can help ensure you’re choosing the best option for your needs.

In this article you will learn about:

Are personal loans installment or revolving credit?

Personal loans are an one of the most common types of installment credit:

  • Borrower receives the entire loan amount up front.
  • Fixed monthly payments until the loan is completely repaid.
  • Full loan amount is only available one time; borrowers must apply for another loan to get more funds.

What is revolving credit?

With revolving credit, you have continual access to funds as you repay them. The lender approves you for a credit limit up to a certain amount, and from that available credit amount you can withdraw funds up to the total amount. Those funds are either sent to your bank account to be used as cash or accessed via a credit card.

When you spend money, the amount available to you decreases by the amount you spend. Then, as you pay down the outstanding balance, the available credit increases again.

Each month, you’ll have to make at least a minimum payment on the borrowed money, though it’s better to pay off what you borrow in full. There’s no defined final payment date because you can technically carry a balance from month to month (though that’s not recommended). The funds are then available to withdraw again.

What is an installment loan?

An installment, or term loan, is a lump sum of money that the borrower repays with interest over a specified period of time, called the loan term. This requires the payments be made in “installments,” or payments on a regular schedule (typically monthly).

Each month, the loan payment will have a due date where the borrower can pay the regularly due fixed amount or more. There’s a start and end date for all payments.

The loan’s term and interest rate often depend on the loan amount and the borrower’s credit. Installment loans may also be called “term loans” because the period of time in which they are repaid is the “term.”

Related: Installment Loans

Pros and cons revolving vs. installment credit

There are benefits to both revolving credit and installment credit/loans depending on your financial needs and preferences:

Pros Cons
Only pay interest on the amount borrowed Fixed payments each month
Borrow, repay, and borrow again as many times as necessary Funds received in one lump sum
Lower monthly payments Access to larger amounts of capital
No interest to pay if balance is paid off each month Typically has lower interest rates than revolving credit
Unsecured, so no collateral required Fast funding, even as soon as the same business day

On the other hand, both types of credit also have some drawbacks:

Pros Cons
Interest rates could increase if borrower is late or misses a payment Must make entire monthly payment in full; cannot choose the payment amount
Fees (late payment, annual, foreign transaction, over the limit, returned payment, balance transfer, interest) Fees (origination)
Higher interest rates on outstanding balances Some lenders charge prepayment penalty for paying off a loan early

Installment loan vs. revolving credit – which is better for you?

This depends on your personal situation and financial needs. For example, if you’re looking to finance a large purchase or consolidate debt, an installment loan would work best:

  • A mortgage can help you buy a home.
  • An auto loan can help you buy a car.
  • A student loan can help fund education expenses.
  • A personal loan can help pay for home renovations, a vacation, a wedding, medical bills, emergency costs, or other purchases or expenses, or to consolidate debt.

However, to qualify for an installment loan, you’ll likely need to have a good credit score, history, and income, and a low debt-to-income ratio. Approval for installment loans, as well as the interest rate, term, and amount you’re approved for, depends on your creditworthiness.

Additionally, you’ll have to make monthly payments over the loan’s term.

On the other hand, revolving credit (such as a credit card) is perfect for smaller purchases or every day expenses. You can also use revolving credit for larger purchases, but because this type of credit typically has higher interest rates, you’ll want to try to pay it off in full each month.

Examples of revolving credit vs. installment loans

Revolving Credit Examples Installment Credit Examples
Credit cards Personal loan
Personal lines of credit Mortgage
Home equity line of credit Auto loan
Student loan
Debt consolidation loan
Home equity loan


This depends on your individual situation and what you’re able to qualify for. A payday loan is easy to get but typically has a very short repayment period and lower borrowing limits. Designed to be repaid upon the borrower’s next payday, this and very high interest rates makes these loans difficult to repay. Personal loans have longer repayment terms and higher limits, but are subject to the borrower’s creditworthiness and could also have high interest rates.

Auto loans are installment loans.

A credit card is revolving credit.

A student loan is an installment loan.

Payment history makes up 35% of your credit score, so regardless if you have installment or revolving credit, making payments on time will have an impact. Credit cards may have a bigger impact than personal loans if you repay them each month and keep your credit utilization rate below 30%. Open credit cards can also contribute to a longer credit history and credit mix.