What's the Difference Between Revolving Debt and Installment Loans?

Updated July 21, 2021 - First published on Aug. 16, 2019

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Both revolving debt and installment loans allow you to borrow, but they work differently. Here are some of the key differences. Image source: Getty Images.

Both revolving debt and installment loans allow you to borrow, but they work differently. Here are some of the key differences.

Before you borrow money, it’s important to understand exactly how your debt will work, and one of the first things you need to know is whether the debt is revolving debt or an installment loan.

Installment loans are loans for a fixed amount that are paid back on a set schedule. With revolving debt, on the other hand, you’re allowed to borrow up to a certain amount, but can borrow as little or as much as you want until you hit your limit. As you pay it down, you can borrow more.

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Let’s take a closer look at both installment loans and revolving debt to better understand the key differences between them.

How borrowing works on revolving debt vs. installment loans

Installment loans are made by banks, credit unions, and online lenders. Common examples of installment loans include mortgage loans, car loans, and personal loans.

Installment loans can have fixed interest rates, which means you know up front exactly how much you’ll pay in interest per month, and in total. They can also have variable rates. If you opt for a variable-rate installment loan, your interest rate is tied to a financial index (such as the prime rate), and can fluctuate. While your payment amount can change with a variable rate loan, your repayment timeline is still fixed -- your payment amount simply goes up or down as your interest rate changes, ensuring you can pay back the loan on time.

Most installment loans are paid monthly. You’ll know up front exactly when your debt will be paid off, and if it’s a fixed-rate loan, you will also know the loan’s total cost. These loans are very predictable -- there are no surprises.

Revolving debt works differently. Common examples of revolving debt include home equity lines of credit and credit cards. With revolving debt, you’re given a maximum borrowing limit, but can choose to use only a little bit of your line of credit, if you want. If you’re given a $10,000 home equity line of credit, for example, you might initially only borrow $1,000 from it. As you paid that $1,000 back, the credit would become available to you again.

Some revolving debt is open-ended, which means your credit line can stay open indefinitely, and you can borrow and pay back your debt forever. This is the case with credit cards. In some cases, you may have your line of credit available only for a limited time, such as 10 years for a home equity line of credit.

With revolving debt, you don’t know up front what the total cost of borrowing will be, or when you’ll pay back your debt. That’s because you could borrow and pay back your loan and borrow and pay back your loan over and over while your line of credit is open, with your payment and interest costs re-determined each time based on the amount borrowed. In many cases, revolving debt also charges a variable interest rate, which means interest costs can change over time.

When can you access borrowed funds on revolving debt vs. installment loans?

When you take out an installment loan, you get the entire amount you’re borrowing in one lump sum when you close on the loan. If you took out a $10,000 personal loan, you’d have $10,000 deposited into your bank account, or would get a $10,000 check. If you decide you need to borrow more money, you’d be out of luck -- even if you paid off almost your entire $10,000 balance. You would need to apply for a new loan to borrow more.

With revolving debt, you get to choose when you borrow funds. You could borrow right after opening a credit card, wait six months, or wait years to borrow, depending on what you want (although if you don’t use your card for too long it could be closed due to inactivity). As long as you haven’t used your full line of credit, you also have the option to borrow again and again, especially as you pay down what you’ve already borrowed.

Installment loans tend to be best when you want to borrow to cover a fixed cost, such as that of a car or another big purchase. If you know you’ll need to borrow but it’s hard to predict when you’ll need the money or how much you’ll need, then revolving debt may make more sense.

How repayment works for revolving debt vs. installment loans

Installment loans come with a predictable repayment schedule. You agree up front with your lender on how often you’ll pay, and how much you will pay. If you have a fixed-rate loan, your payment never changes. So if you borrowed money on a five-year term and your monthly payments started out at $150 per month, five years from now, they’d still be $150 per month.

Revolving debt payments depend on how much you’ve borrowed. If you haven’t drawn from your line of credit, you won’t pay anything. Usually, when you’ve borrowed, you pay your revolving debt on a monthly basis. But, you may pay only a small portion of what is due. When you have a credit card, for example, your minimum payment may be either 2% of your balance or $10, whichever is lower.

If you make minimum payments only on revolving debt, it can take a long time to pay back what you owe, and you’ll pay a ton of interest during the time the debt is outstanding.

Now you know the difference between revolving debt and installment loans

Now you know the key differences between revolving debt and installment loans, which include:

How borrowing works: With installment loans, you’re approved to borrow a fixed amount and can’t access more money unless you apply for a new loan. With revolving debt, you’re given a maximum credit limit and can borrow as much or as little as you want. You can also borrow more as you repay what you’ve already borrowed.
When you access funds: If you take out an installment loan, you get the full amount you’ve borrowed up front. With revolving debt, you haven’t actually borrowed anything when you’re given a credit line. You can borrow anytime you want as long as the credit line remains active.
How repayment works: Installment loans have a set repayment schedule and a definite payoff date. Your monthly payments are calculated so you pay off the loan by the designated date. With revolving credit, you can make minimum payments as you borrow. And, because you can borrow more as you pay back what you already owed, there may not be any definite date as to when you’ll be free of the debt.

You’ll need to decide which type of financing is right for your particular situation so that you can get a loan or line of credit that makes sense for you.

Our Research Expert

Christy Bieber

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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4 Little-Known Perks of a Costco Membership

By: Dana George | Updated July 25, 2023- First published on July 25, 2023

Costco has a faithful legion of fans -- otherwise known as members. There are 123 million of them, to be precise. Throughout the years, Costco has added new membership benefits, some less well-known than others. Here are four that members may not realize exist.1. RV parkingWhether you spend part of each year visiting the highways and byways of North America or you're hoping to rent an RV for your next vacation, it's good to know that some Costco locations allow RVs to park overnight in their lots. Free overnight parking can certainly cut down the cost of travel.Consider the convenience. You arrive near closing time, pick up all the items you've already burned through or forgotten to bring, and spend the night in a well-lit lot. Granted, pulling an RV into a (typically) packed Costco lot may not be the easiest thing you've ever done, but once the lot clears out, you may even hear the sound of crickets.Notice we said that some Costcos permit overnight parking for RVs. When a store does not, it's often because local ordinances don't allow it. However, with so many Costcos scattered across the country, you should have options.The easiest way to determine which Costcos allow overnight RV parking is to check this Costco locations finder. Once you see one near where you plan to stay, call that store and ask to speak with the manager. Once you have them on the line, ask about their overnight policy. If the store does permit overnight parking, ask for permission to stay. According to the Camper Report, Costco has rules for campers, so you may want to ask where you can get a copy of those.2. Home, auto, renters, and specialty insuranceIn the back of our minds, most of us realize that Costco offers insurance, but we're not sure of the details. Partnering with CONNECT, powered by American Family, Costco members receive discounted rates on many of their insurance needs. Beyond the initial discount, CONNECT allows you to add more. For example, you may qualify for a safe driving, multi-policy, or student discount.And if you're an Executive member, CONNECT sweetens the pot even more by providing you with benefits like roadside and lockout assistance.At a time when many people are unhappy with the insurance industry, 9 out of 10 members who sign up for CONNECT coverage go on to renew their policy with the insurer.3. Home and business suppliesWhile it may occur to you to pick up envelopes and printer paper at Costco, have you ever taken advantage of the low prices on items like checks, ink stamps, and address labels? Many of the supplies you need to take care of business -- at home or in the office -- are available for up to 50% off.Executive members enjoy an even deeper discount.4. Floral deliveryOnce you factor in delivery costs, sending a lovely bouquet of flowers to someone can cost a small fortune. That's not the case at Costco. Costco's online floral department offers everything from anniversary and graduation bouquets to bulk flowers. And here's where the real savings come in: Delivery is free. The price you see listed on the site, plus tax, is the price you pay.Few things are more frustrating than typing your credit card number into a florist's site, only to learn that delivery costs nearly doubled your purchase price.As Costco layers on new perks, keeping track of them may become even more difficult. It's a good idea to check periodically to see if there are any you're not taking full advantage of.

SNAP Benefits Will Increase in 2024. Here's How Much a Family of 4 Will Receive

By: Emma Newbery | Updated Aug. 7, 2023- First published on Aug. 7, 2023

Are SNAP benefits enough?A monthly payment of $973 for a household of four equates to around $8 per person per day. While SNAP benefits aren't designed to cover everything, it isn't easy to feed a family on around $2.66 per person per meal. Indeed, research from the Urban Institute showed that the maximum benefits often don't cover a family's food costs. "Amid inflation, SNAP benefits did not cover the cost of a meal in 99 percent of counties in 2022," said the report.The new benefit amount -- a monthly increase of $34 for a household of four -- is roughly in line with cost-of-living increases measured by the Bureau of Labor Statistics (BLS). Its latest Consumer Price Index figures show that the cost of all items in June, 2023 was up 3% over the year before. However, inflation does not impact all aspects of life equally.The BLS data also shows that food at home increased by 5.7% year over year. The new SNAP benefits do not match this. Hypothetically, a 5.7% increase in benefits for a family of four would mean a new monthly payment of $992, rather than the planned $973.In addition, this year brought the end of the pandemic-era emergency food benefits throughout the country. According to CBPP calculations, this meant the average person received about $90 a month less in SNAP benefits. Even factoring in the increased SNAP benefit amount, many households have seen a significant drop in their food benefit amount, and the revised 2024 payments will do little to close this gap.How to make your SNAP benefits go furtherIt can take time and energy to provide healthy food for your family on a strict budget. The challenge is that in a busy household, time and energy are also limited resources. Even so, if you can carve out some time to plan your grocery-shopping trip, it can make a big difference.Here are some ways you might stretch your SNAP benefits a little:Use cash back apps and coupons: Look for cash back apps that work in stores that take your EBT card. You'll usually need to download an app and then scan your receipt after you've been to the store. Pay attention to coupons, whether in store or online as these can often carry hefty discounts.Always shop with a list: Planning your food shopping is one of the best ways to reduce costs. Even more so if you use a cash back app or coupons. Check what offers are available on items you normally buy before you go shopping. Mark the items that qualify for rewards or discounts on your list, so you don't miss them when you're shopping.Look for double up programs: There are Double Up Food Bucks or other programs in various states that essentially give you two for one on all produce at participating farmers markets and stores. It's a great way to get more fruit and vegetables for your SNAP dollars.Buy in bulk and batch cook: It isn't always easy to find the extra cash for bulk buying when you're eking out every cent. However, if you can manage it, you may be able to save both money and time. You might, for example, batch cook a stew and freeze portions for future meals.Unfortunately, food insecurity still impacts many American households. If you don't have enough money to feed your family this month, look for additional help. Find out what food pantries and soup kitchens are operating in your area on which days, and whether you'll need to present any documents. Call United Way at 211 for information about assistance programs in your area.

Does Your Income Make You Upper Class, Middle Class, or Lower Class?

By: Christy Bieber | Updated Sept. 5, 2023- First published on Sept. 5, 2023

Incomes vary widely across the United States, with some people making many times the amount that others earn. If you've ever wondered how your personal finances stack up, and what "class" your income officially puts you in, here's what you need to know.What income do you need to be upper, middle, or lower class?Based on 2021 data, here's what you would need to earn in order to be in each class:Lower class: This is defined as the bottom 20% of earners. Those in the lower class have an income at or below $28,007.Lower middle class: This is defined as individuals in the 20th to 40th percentile of household income. Earnings among this group are between $28,008 and $55,000Middle class: The middle class is officially those whose earnings put them in the 40th to 60th percentile of household income. The income range is $55,001 to $89,744.Upper middle class: Anyone with earnings in the 60th to 80th percentile would be considered upper middle class. Those in the upper middle class have incomes between $89,745 and $149,131.Upper class: Finally, the upper class is the top 20% of earners and they have incomes of $149,132 or higher.Take a look at these numbers and see where you fall based on your own earnings. And remember, this is a snapshot in time -- your earnings can change throughout your life, and so can your class designation.Will your success be determined by your income and class?It's probably not a surprise that those in the upper classes or in the upper middle class do have a higher net worth than those in the lower class or the lower middle class. But the disparity is greater than you might think. While the median net worth of those with incomes of $149,132 or higher is $805,400, the median net worth of those in the lower class is just $12,000.Your income impacts how easy it is for you to build wealth. If you make more money, it is easier to save it and invest it in a brokerage account where it can work for you. If you make less money, then you may struggle even to cover the necessities out of your checking account, much less to buy valuable assets that help you grow richer over time.But that doesn't mean people who don't make a lot of money can't be a financial success. A lot depends on what you do with the money you actually have, including how much you spend and how much you save.There are plenty of people who make over $100,000 a year who live paycheck to paycheck, and plenty of people with incomes that put them squarely in the lower or lower middle class who have diligently saved and grown quite wealthy over many years.Here's how you can improve your standingDon't be discouraged if you aren't in the class you hope to be. For one thing, you have opportunities to increase your income by taking the following steps:Learning new job skills: You could obtain a certification, take part in a management training program at work, or take some classes to develop skills that may help you get promoted (such as computer training courses or public speaking classes), depending on your industry.Take on a side hustle: The average side hustle brings in $483 per month, which is a good amount of extra money that could make a meaningful difference in your income.Work some extra hours: If your company allows you to work overtime, take advantage of it, as many people are paid time and a half for overtime hours.Negotiate your salary: According to Pew Research, when workers negotiated for higher pay, 28% said they received the extra money they asked for and 38% indicated they were given more than originally offered but less than their ask. Whether you are getting a new job or staying at your current job but feel you're underpaid, it doesn't hurt to make a request for more money -- especially if you can find salary data to back up the fact that others in your industry are paid more.And even if your earnings never put you in the top 20% of earners, you can still have a rich life and end up with the financial security you deserve -- especially if you prioritize saving as much as you can for as long as you can.

3 Reasons I Don't Like Aldi as Much as I Used To

By: Maurie Backman | Updated Sept. 13, 2023- First published on Sept. 13, 2023

At some point in 2022, I discovered Aldi and began shopping there weekly. I found that I was able to save money on my grocery bill by purchasing certain produce items there. And since I happen to have an Aldi adjacent to my local Costco, it wasn't particularly out of my way.But over the past few months, I've become less enamored with Aldi. Here's why.1. The selection is just too limitedAldi -- at least near me -- is a minimally stocked grocery store. The shelves aren't loaded the way they are at my nearby ShopRite and Stop & Shop.To be fair, this was the case when I first started shopping there. But because there's just not a lot of selection, I'm generally limited to only buying a few items when I pop into Aldi.Not so long ago, I was running into Aldi for some fruit, which I usually buy there, and I needed to grab shredded cheddar cheese. Normally, I get that at Costco, but I didn't want to run next door to Costco and wait in a line for cheese alone. Unfortunately, though, Aldi didn't have the cheese I needed, so I had to make an extra stop anyway.2. The inventory is too inconsistentNot only is there a limited selection of food items I can buy at Aldi, but sometimes, I can't even find the five or six things I'm looking for. Aldi was once my go-to source for avocados, since it's an expensive purchase and Aldi tends to sell them for less than Costco (at least in my area). But the last few times I stopped at Aldi, avocados weren't in stock.And that's happened to me with other things, too. Over the past several months, I've struggled to find everything from cucumbers to strawberries at Aldi as well.3. What the store saves me on groceries, I lose via lost working hoursShopping at Aldi still has the potential to save me a little money on groceries. At a time when supermarket prices are up 3.6% on an annual basis, that helps.The problem, however, is that even though Aldi is right near Costco in my neighborhood, thereby allowing me to combine those trips, it still takes time to visit an extra supermarket. I have to find parking, wait in a checkout line, and spend time searching the shelves.While it's nice to save $2 here and $3 there, the reality is that a stop at Aldi might cost me 20 or more minutes of work -- especially when I don't manage to find the things I need. And losing out on that work time often means forgoing more than $2 or $3 of income. So from a time perspective, it's just not worth it.Shopping at Aldi could make sense for a lot of people. If you're someone with flexibility in your schedule and grocery list, and you're not so picky about the brands you bring home, then it could pay to spend the time visiting Aldi, even if you don't always manage to find all the things you need. But I've reached the point where shopping at Aldi makes less and less sense for me, so I'll most likely stop going there unless it's a one-off basis.

5 Can't-Miss Fall Items From Sam's Club

By: Brittney Myers | Updated Sept. 20, 2023- First published on Sept. 20, 2023

How can you tell when autumn is almost here? It's not the leaves on the ground, or the chill in the air. No, the first sign of fall is the deluge of pumpkin spice everything hitting the store shelves.Even if you're not crazy for spicy squash, there are a lot of interesting items that show up this time of year in all our favorite stores. Sam's Club, for example, has already started rolling out some of its seasonal selections. Take a look at some of the limited-time fall items out now.1. Member's Mark seasonal soupsIf there's any dish that epitomizes fall flavors, it has to be soup. Sipping soup on a crisp fall evening is about as close to autumn nirvana as you can get (without literally turning into a pumpkin). These seasonal soups offer some of that fall feeling without putting your budget into hibernation:Autumn Squash Soup (32 oz. tub, 2 pk.) | $9.98 ($0.16/oz)Member's Mark Black Beans, Corn and Spicy Chorizo Soup (24 ounce tub, 2 pk.) | $10.48 ($0.22/oz)2. Pumpkin spice coffeesWhole bean, ground, K-cup -- doesn't matter how you like your pumpkin spice coffee, Sam's Club has an option for you this fall. You can find a variety of brands and styles, all at the great prices you'd expect to see:Boyer's Whole Bean Coffee, Pumpkin Spice (36 oz.) | $18.88 ($0.52/oz)Community Coffee Ground Coffee, Spiced Pumpkin Pecan Pie (32 oz.) | $14.42 ($0.45/oz)Copper Moon Coffee Single Serve Cups, Harvest Pack (36 ct.) | $12.98 ($0.36/ea)Dunkin' Donuts Medium Roast K-Cups, Pumpkin Spice (54 ct.) | $29.98 ($0.56/ea)Starbucks Limited Edition K-Cup Coffee Pods, Pumpkin Spice (64 ct.) | $29.98 ($0.47/ea)3. Fall decorFew things will get you in that leaves-on-the-ground mood quite like some seasonal fall decor. Sam's Club has a surprising variety of harvest-inspired decorations, from front porch pumpkins strung with twinkly lights to a set of resin turkeys for your tablescape. (There's also a good array of indoor and outdoor Halloween decorations, too.)Member's Mark Harvest Door Mat (various styles) | $9.98Member's Mark Halloween Ceramic Candy Bowl (various styles) | $19.98Member's Mark Harvest Wreath (various styles) | $34.98 to $49.98Member's Mark Harvest Pumpkin Set (various colors) | $54.984. Oktoberfest-inspired snacksIt doesn't have as much hype in the U.S. as Thanksgiving -- or even Pumpkin Spice Season -- but lots of folks love to raise their tankard for Oktoberfest. These snacks both look like they'd be good washed down with a pint:Member's Mark Beer Cheese Flavored Popcorn (14 oz.) | $4.98 ($0.36/oz)Member's Mark Oktoberfest Mini Pretzel Franks (18 oz.) | $11.98 ($0.67/oz)5. Halloween candyHalloween candy holds a special appeal for many of us, regardless of our age. What's really cool, though, is that when you're an adult, you can just, like, buy the stuff -- no costume required. Of course, as an adult, you also need to be financially responsible. So, buy your candy from Sam's Club in bulk. You know, for the savings.Reese's Halloween Pumpkins Candy Bulk Bag (39.8 oz., 65 Pieces) | $11.98 ($0.18/ea)Hershey Halloween Candy Bulk Variety Bag (53.7 oz., 105 pcs) | $18.98 ($0.18/ea)Sweetarts Halloween Ghostly Goodies Mix (59.86 oz., 175 ct.) | $19.98 ($0.11/ea)A lot more fall to comeLet's be honest: It's not really autumn yet. And it certainly wasn't autumn when all this pumpkin nonsense started weeks ago. There's still so much actual autumn to come!The point? Pace yourself -- and your bank account.After a long, hot summer, it can be so tempting to embrace the fall feeling, even if it does come a few weeks early. Part of that, for many folks, is drowning their summer sorrows in pumpkin spice. But all that mood-altering goodness isn't free (or even cheap). No, it can add up faster than you think.Before you start running up your credit cards on seasonal goodies, take the time to figure out which ones will bring you the most joy. Focus on one or two items that will really make you feel like fall is on the way, and leave the rest for other pumpkin lovers to enjoy.

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