Consumer Credit
Candlefocus EditorInstallment credit is a type of loan in which the borrower agrees to pay back a set amount, over a fixed period of time, until the total amount has been paid off completely. Installment credit is typically used for large-scale purchases such as cars, furniture, and home repairs, and they typically have lower interest rates than other forms of consumer credit. As opposed to revolving credit, the full amount of an installment loan must be paid off in order to close the account.
Revolving credit, on the other hand, is an open-ended loan agreement in which the borrower can make purchases up to an established credit limit. Unlike installment credit, the borrower can write checks or make purchases with a credit card up to the established limit. Once the borrower repays the loan, the credit limit resets, allowing them to make additional purchases up to the limit again. Credit cards are the most common form of revolving credit. While it can be convenient, it can be difficult for borrowers to keep track of the balance and avoid accruing excessive interest charges.
It's important for consumers to understand how each type of credit works, the terms and conditions associated with them, and how their credit habits can affect their credit score. Developing responsible debt management habits and understanding the consequences of missed payments can help borrowers make informed decisions.