Is a Personal Loan an Installment Loan or Revolving Credit?

When it comes to credit products, there are two main categories: installment loans and revolving credit. Both of these types of debt can impact your credit score, but they work very differently from each other.

In this blog post, we will discuss the differences and answer one common question: Is a personal loan an installment loan or revolving credit?

Read on to find out!

Is a Personal Loan an Installment Loan?

Personal loans are fixed-term loans where the borrower agrees to pay a certain amount each month until the loan is paid off in full. The interest rate on a personal loan is also fixed, which means that the monthly payments will be the same for the entire length of the loan. Therefore, personal loans are a form of installment credit.

Differences Between Installment Loans and Revolving Credit

What is the difference between a personal loan and revolving credit? To outline them, we need to define the two debt types.

Installment loans require you to pay back the amount borrowed in monthly payments over an agreed-upon period. At the end of this term, you will have paid off your entire debt and be done with your loan.

These types of loans can include mortgages, student loans, car loans, personal loans, and home equity loans.

Revolving credit allows you to borrow again once you have repaid your current debt. This type of loan works like a credit card – you can borrow up to a certain limit and then pay off that debt over time. You can keep borrowing again and again as long as you never go over your credit limit.

So, what types of loans are revolving? Examples include credit cards, personal lines of credit, home equity lines of credit (HELOCs), and business lines of credit.

In a nutshell, one key difference between installment loans and revolving credit is that you do not have to use all the money at once with a revolving loan. It’s up to you. With installment loans, you get all of the money in one lump sum and then pay it back over time.

In addition, with revolving credit, borrowers only owe interest on the amount they draw, while installment loans feature a predetermined repayment plan, including interest on the whole borrowed amount. ​​

Another difference is that with a revolving loan, your interest rate can change if market rates go up or down. But with an installment loan, your interest rate is usually fixed for the entire repayment term.

Which Has a Bigger Impact on Credit Score?

Both installment loans and revolving credit can affect your credit scores. Whether they will damage or improve your standing depends on how you handle them.

That being said, revolving credit is much more reflective of how you manage your money than an installment loan. That’s because credit scoring agencies consider credit utilization as the second-most important factor when determining your credit score (only after payment history).

Credit utilization measures how much credit you use compared to how much you have available. If your utilization ratio is high, it indicates that you may be overspending, which can negatively impact your score. And vice versa, if you use just a portion of your available credit – up to 30%, according to experts – and pay off your balance on time, you would enjoy a credit score boost.

But credit utilization only applies to revolving credit accounts. A personal loan doesn’t factor into your credit utilization because it’s a form of installment credit. Nevertheless, you can use an installment loan to diversify your credit mix or pay off revolving credit debt, both of which can have a positive impact on your score.

Pros and Cons

There are pros and cons of both installment loans and revolving credit. With a personal loan, you know exactly how much you will owe each month and for how long. This makes it easy to budget your money and plan for the future. Additionally, because the interest rate is fixed, you know what your total payments will be over the life of the loan.

Installment credit can be less expensive than revolving credit. In general, installment credit lenders offer lower interest rates for borrowers with good credit. Also, revolving debt can come with extra fees for late payments or exceeding credit limits.

On the downside, installment loans can be more difficult to get. They have more stringent qualifications regarding income, other outstanding debt, and credit history.

And the main advantage of having a revolving line of credit is that the approved maximum amount of credit is at your disposal at any time. Therefore, you don’t need to go through a lengthy approval process to access extra funds when you need them.

Bottom Line

Is a personal loan an installment or revolving?

A personal loan is an installment loan because it has a fixed term and interest rate, whereas a line of credit is a revolving debt that does not have these features. A line of credit might be useful if you want to borrow money over a long period, but it’s more expensive than an installment loan.

Ultimately, they both have their pros and cons, and the best option is the one that suits your financial needs.


How many accounts are too many?

There is no set number of accounts you should have. Lenders may see too many installment loans as a sign that you are having trouble managing your debt, making it difficult for you to get approved for any new lines of credit. On the other hand, having very few accounts can make it hard for scoring models to render a score for you.

According to some credit experts, five or more is a reasonable number of accounts. Yet the best advice you can get is not to open more accounts than you can serve.

How many revolving accounts are too many?

There is no definitive answer to this question, but generally speaking, the more revolving credit you have, the more it will drag down your credit scores. This is because lenders see revolving debt as a higher risk than installment debt.

Which to pay off first?

If you are struggling to make payments on both your installment loans and your revolving credit, then you should focus on paying off the high-interest loan first. This will help you avoid late payments and other penalties that can have a big impact on your credit score.

Can you use installment loans to pay off revolving debt?

It is generally not recommended to take out an installment loan to pay off your revolving credit because this would increase the amount of interest you owe over the life of the new loan. It would also increase your total amount owed and reduce available credit, which could negatively impact your credit score. However, if you don’t have another way of paying off the debt, then it might be worth considering this option.


After I got my degree in translation and interpreting, I started working in a typical office. To get away from my nine-to-five job, I ventured into freelance writing. One thing led to another, and I ended up creating content for SpendMeNot. I have been involved with this site ever since its launch — first as a writer and now as a manager.

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