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Instalment Loans Vs Revolving Credit: Key Differences

Author: webadmin And Facted Checked by : Shanie Capper
Last updated on : 21 March 2024

While both are methods of borrowing money, that shared purpose is largely where the similarities end between instalment loans and revolving credit since there are far more things that make them unique and suitable for different purposes.

Payment Schedule

While borrowers of an instalment loan will have access to their amount in one lump sum which they will then need to pay off gradually, those using revolving credit will have a fixed amount that can be used at any time they need it, which they will then pay back, and borrow again, with this cycle continuing.

This makes the very nature of the two loans very different as while people will take out hefty instalment loans to fund a long-term venture or a big expense in the short-term with the aim of then paying this back, revolving credit is seen as being much more flexible and giving the borrower the ability to drawdown, repay, and redraw.

Repayment Method

One of the biggest differences between instalment loans and revolving credit is in how they are re-payed. Revolving credit allows the borrower to spend the money, repay it by an agreed date, and then spend it again, with a maximum amount set in place to determine how much you can spend on that account.

Instalment loans are repaid through scheduled payments that usually occur monthly, with the goal of diminishing the original borrowed amount until the credit cycle has ended. This difference in repayment also means that, unlike instalment loans, there is no set payment plan for revolving credit as the borrower can simply borrow up to a maximum amount.

Borrowed Amount

The frequency of revolving credit and how often it can be used does come at the expense of the maximum amount you can actually lend which will often be much lower than that of instalment loans. While revolving credit amounts will rarely go over a maximum amount of £3500 to £5000, instalment loans can go much higher than this depending on the repayment schedule and the overall term of the loan.

Interest Rates And Qualification

Interest Rates And Qualification

The flexible and frequent schedules of revolving credit does mean that it usually carries higher interest rates with it too. The interest is calculated on the amount withdrawn, so the more you spend on your revolving borrowed money, the more you will have to pay on interest. With instalment loans, this can vary a lot more since it can depend on the lender and your current credit score.

Getting an instalment loan with bad credit can result in sky-high interest, so while these loans will tend to have lower rates overall, this can still be very high if care is not taken with previous loans and payments. This also means instalment loans are much harder to qualify for since you will need at least a decent credit score to be considered, while you will still be eligible for revolving credit with most credit scores.

Credit Score

Revolving credit tends to be much harsher on a person’s credit score than instalment loans since lenders tend to view borrowers with high amounts of credit card debt as risky and unreliable in terms of repayments, which can make it a lot harder to apply for many types of loans in the future.

Paying back your revolving credit on time will still be reflected positively on your credit, however lenders can be especially favorable to borrowers who pay back their installment credit on time and abide by the terms of their loan. The major difference here is how gradually credit can be gained and lost for both.

For example with revolving credit, you could see your credit score improve drastically just by paying off any remaining credit card debt. With instalment loans, borrowers will need to wait until they have a more positive credit history until their score will begin to change, making it much more of a gradual process.

Instalment Loans Or Revolving Credit: Which Should I Choose?

To determine which borrowing method is best for you, you will need to be honest about what you intend to spend the income on, and more specifically, whether it’s to help you meet your long-awaited financial goals, or if it is simply to assist in managing finances by offering smaller payments.

If it’s the former, then instalment loans will be much better granting you a large sum all at once which you will only have to pay back through determined schedules. You can take out more money with an instalment, and it can be considered more of a “one-off payment” when compared to revolving credit since you won’t have agreed to partake in a cycle of borrowing, but instead, you are just simply using a single sum.

Revolving credit on the other hand is less for big and expansive projects and more as a financial tool to make everyday purchases easier and less taxing on your overall balance. Revolving credit services can often last for a few years at a time, so borrowers don’t need to manually apply for a new loan, making it very easy to manage and extremely convenient.

Here are a few final considerations to think about when deciding which of these methods you should use:

  • Temptation to overspend – If you’re someone who tends to spend out of habit when you may not need to, revolving credit can make it easy to slip into that mentality, while instalment loans tend to convince people to conserve more so that they can reach each of their re-payment dates.
  • Budgeting – While both can be managed with enough planning, the monthly payments provided in instalment loans tend to be much easier to budget since you can get into a routine of spending enough until the expected date rolls around. This can be a little trickier with revolving credit since the smaller amount you receive can be gone much easier if care is not taken.


When choosing between revolving credit or taking out an instalment loan, you realistically want to measure up what you want to use the money for, before thinking about additional factors such as flexibility and convenience.

For those long-term ventures or large events that you are anticipating, one of the multiple instalment loans will work well, while revolving credit is much more suited to assisting financial stability and making regular purchases a lot easier and less taxing.


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