Revolving credit and installment credit are two types of credit that work differently. Revolving credit allows borrowers to spend the borrowed money up to a predetermined credit limit, repay it, and spend it again. With installment credit, the borrower receives a lump sum of money that they must repay, in installments, by a specified date. Both revolving and installment credit come in secured and unsecured forms, but it is more common to see secured installment loans.
Student loans are an extremely common way for people to pay for college these days. With the cost of higher education continually rising, many students have no choice but to take out loans to cover tuition and living expenses This leads to an important question – are student loans considered installment or revolving credit?
The answer is that student loans are installment loans, not revolving credit like credit cards or lines of credit. Let’s break this down in more detail:
What is Installment Credit?
An installment loan provides the borrower with a lump sum of money upfront, which is then repaid over time through fixed payments Common examples include mortgages, auto loans, and student loans
Some key features of installment loans:
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Fixed loan amount received at the beginning
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Loan is repaid through regular payments over a set period of time
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Interest rate and monthly payment stay the same over life of the loan (for fixed-rate installment loans)
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Appears as a fixed loan with set terms on your credit report
Installment loans allow borrowers to finance large purchases by breaking repayment into smaller, predictable monthly payments. This makes budgeting easier.
What is Revolving Credit?
Revolving credit provides flexible borrowing up to a specified limit. The most common examples are credit cards and home equity lines of credit (HELOCs).
Some key features of revolving credit:
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No fixed loan amount, you can borrow up to your credit limit
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You can carry a balance and just make minimum payments, or pay off your balance in full each month
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Interest rate may be variable, meaning it can fluctuate over time
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Your available credit replenishes as you make payments
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Credit utilization ratio factors into your credit score
Revolving credit allows convenient access to funds as needed, but often comes with higher interest rates and the risk of racking up too much debt.
Student Loans are Installment Loans
When getting a federal or private student loan, you receive your full loan amount upfront each academic period. You are then obligated to repay the loan through monthly payments over a fixed term after graduating.
Some key points about student loans as installment credit:
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Receive total loan balance at the start each semester or year
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Interest rates are fixed for federal loans, may be fixed or variable for private loans
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Monthly payments do not fluctuate after you enter repayment
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Loans have a set repayment term, usually 10-15 years
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Student loans cannot be “revolved,” you cannot borrow additional funds from existing loans
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Appear as fixed installment debts on your credit report
Student loans function like any other installment loan. You cannot draw from them as needed like a credit card. The loan amount, interest rate, and monthly payments are set.
This provides certainty for borrowers about what they will owe. However, it also means student loans stay with you until fully repaid through steady monthly payments over years. There is no flexibility once the loan is disbursed.
Installment Loans vs. Revolving Credit: Key Differences
| Installment Loans | Revolving Credit |
|---|---|
| Fixed loan amount | Flexible credit limit |
| Fixed monthly payments | Minimum or full payments |
| Set repayment term | Ongoing access to credit |
| Fixed interest rates common | Variable rates common |
| Appears as installment loan on credit | Impacts credit utilization ratio |
Pros and Cons of Student Loans as Installment Debt
Pros:
- Predictable monthly payments
- Lower interest rates than credit cards
- Build credit history and mix of accounts
Cons:
- Long repayment periods, often 10-15 years
- Difficult to discharge in bankruptcy
- Missed payments hurt credit score
- Paying interest over life of loan
While installment loans allow for manageable monthly payments, it also means paying interest charges for many years until the principal is fully repaid.
Should You Refinance Your Student Loans?
If you have a mix of federal and private student loans, refinancing with a private lender like SoFi could help streamline your payments.
Refinancing replaces your existing loans with a new single private loan at a lower rate. This can reduce your monthly payments and help you pay off your debt faster.
Key benefits of student loan refinancing include:
- Lower interest rate = save money on interest
- Single monthly payment vs. multiple loans
- Flexible loan terms of 5, 7, 10, 15, 20 years
- No prepayment penalties
The caveats are that you lose federal borrower protections like income-driven repayment and deferment options when you refinance federal loans into a private loan. Always make sure you understand the pros and cons before refinancing.
Other Ways to Pay for College
While installment student loans are the most common approach to paying for higher education, other options also exist:
- Scholarships & Grants – Free money that does not need to be repaid
- Work-Study Programs – Part-time jobs for students on campus
- Savings Accounts – Building college savings over many years
- Employer Tuition Assistance – Companies help with continuing education
- Military & GI Bill Benefits – Help for active duty service members and veterans
- Payment Plans With School – Pay tuition directly to the university over time
The key is exploring all possible options for free or low-cost funding before taking out student loans. Every bit helps reduce the amount you’ll owe after graduation.
The Bottom Line
Unlike revolving credit like credit cards, student loans provide an upfront, fixed amount of financing that is repaid over many years through steady installment payments.
While this allows for predictable budgets, it also results in very long repayment periods where interest charges accumulate.
Taking out the minimum amount of student loans needed, pursuing other funding sources, and refinancing high-rate debt can help manage installment student debt and pay it off faster.
What Is Installment Credit?
Unlike revolving credit, an installment loan has a predetermined length, often referred to as the loan term. The loan agreement usually includes an amortization schedule, in which the principal is gradually reduced through installment payments over the course of several years. You will receive the money you borrow all at once in a single lump sum.
Common installment loans include mortgages, auto loans, student loans, and personal loans. With each of these, you know how much your monthly payment is and how long you will have to make payments. If you want to borrow more money at any point youll have to take out another loan.
| Revolving Credit vs. Installment Credit | |
|---|---|
| Revolving Credit | Installment Credit |
| Amount loaned can be used at any time, paid back, and borrowed again as needed | Borrowers have access to the amount loaned in one lump sum |
| Often has higher interest rates | Can be tougher to qualify for |
| Borrowers only owe interest on the amount they use | Fixed number of payments, including interest, over a set period of time |
What Is the Difference Between a Secured Loan and an Unsecured Loan?
In a secured loan, the borrower puts up some form of collateral. With a home mortgage, for example, the home typically serves as collateral. In an unsecured loan, the lender makes the loan on the basis of the borrowers creditworthiness. Because secured loans are less risky for lenders they usually charge lower interest rates on them than on unsecured loans.
Installment vs Revolving Loans
FAQ
Is a student loan an installment contract?
Is my student loan an installment loan?
Is a loan installment or revolving?
What type of debt is a student loan considered?
Are student loans revolving credit?
The answer is “no” for multiple reasons, including the fact that student loans are considered installment loans instead of revolving credit.. This money is not automatically available to you again as you pay it off. Can Student Loans Help My Credit? With that being said, your student loans can affect your overall credit score.
What is a revolving student loan?
Student loans are considered installment loans, or loans that are repaid through regularly scheduled payments or installments. Revolving options, like credit cards, let borrowers take out varying amounts of money each month, repay it, and take out more money as they go. Learn more about installment loans and revolving credit below.
Do installment loans and revolving credit help your credit score?
Having both installment loans and revolving credit will help your credit score, as long as you pay the bills on time. Both types of credit illustrate to lenders that you are able to borrow varying amounts of money each month and consistently pay it back. But if you’re struggling to decide which to pay off first, focus on your credit card debt.
What is the difference between revolving and installment credit?
Both revolving and installment credit come in secured and unsecured forms, but it is more common to see secured installment loans. Installment credit provides the borrower with a lump sum of money, which they must repay in fixed installments by a certain date.