Comparison – Revolving Credit vs Installment Credit

In my post about whether or not you should cut up your credit cards, I mentioned Revolving Credit and Installment Credit. These are two of the most common ways to borrow money, and yet most people don’t understand the differences between them. So I will explain in this quick post.

Revolving Credit

  • treated as an account, with no end date
  • typically has a set maximum/limit to the amount which can be borrowed
  • you can borrow funds, pay them back, and borrow again (revolving)
  • no fixed payment amount; usually the minimum payment is calculated as a percentage of the current balance owed
  • monthly payment schedule is common
  • interest rates are typically higher, 10-20% APR, current national average rate for credit cards is about 15% APR
  • example: traditional credit cards; department store credit cards

Installment Credit

  • treated as a traditional agreement to borrow funds and then pay them back by a certain date
  • defined or set amount is borrowed in a lump sum
  • fixed payment amounts on a fixed monthly schedule are common
  • interest rates typically lower, national averages for mortgage rates are between 3% and 5% APR
  • examples: mortgage, auto, personal, student loans

​There you have it. Let me know if you have questions about anything covered in this comparison of revolving credit and installment credit.

Do you dream of being completely debt-free? What about having “pay day” be just another day on the calendar? I want to show you how you can get there. Connect with me, and we will make the journey to financial freedom together.

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