Are Credit Cards Installment Or Revolving? We Show The Answer

If you’re confused about credit cards, don’t worry – you’re not alone. Here, we’ll break down the basics of credit cards and help you understand basics like if they’re a fixed or revolving type of credit.

While the core answer will be that they are revolving, we’ll discuss an interesting trend in recent years where some credit card companies are letting you convert your revolving credit card balance to a fixed payment plan. So the line has begun to blue in the past few years.

Understanding Credit Cards

Before we dive into the specifics of installment and revolving credit, let’s get a better understanding of what credit cards are.

What is a Credit Card?

A credit card is a type of payment card that allows you to borrow money from a lender to make purchases. The borrowed money must be paid back, usually with interest, over time. Typically within about a month. Credit cards also come with credit limits, which represent the maximum amount of money you can borrow.

It’s important to note that credit cards are not the same as debit cards. With a debit card, you are using your own money to make purchases. With a credit card, you are borrowing money that you will need to pay back.

How Credit Cards Work

When you use your credit card to make a purchase, the credit card company pays the vendor on your behalf. This means that you are essentially taking out a loan from the credit card company for the amount of the purchase. You then owe the credit card company the amount you borrowed plus any interest and fees that may apply. With the vast majority of credit cards, if you make the repayment quickly, typically within a few weeks or a month, you will not owe any interest or fees.

If you don’t pay off the full balance every month, the remaining balance will accrue interest and continue to grow over time. This is why it’s important to make at least the minimum payment on your credit card each month to avoid additional fees and interest charges. Ideally, you actually should pay off the full balance every single month – this is what we do, without fail.

Types of Credit Cards

There are several types of credit cards, each with its own features and benefits. Some of the most common types include:

• Rewards credit cards: These cards offer rewards, such as cashback or points, for purchases made with the card. This is where we tend to focus.
• Balance transfer credit cards: These cards allow you to transfer high-interest debt from one or more credit cards to a new card with a lower interest rate.
• Secured credit cards: These cards require a security deposit, which acts as collateral for the credit limit. These cards are often used by people who are trying to build or rebuild their credit.
• Airline credit cards: These cards offer rewards, such as frequent flyer miles or free checked bags, for purchases made with the card. These cards are often used by people who travel frequently.

It’s important to choose a credit card that fits your needs and spending habits. If you travel frequently, an airline credit card may be a good choice for you. If you want to earn rewards for your purchases, a rewards credit card may be a good fit. Be sure to read the terms and conditions of any credit card you are considering to fully understand the fees, interest rates, and rewards programs.

Many people, like us, have at least a couple of credit cards, to be able to use the optimal credit card for rewards or points in different spending situations.

 You can see in the graph below that credit cards and revolving credit more broadly has become increasingly popular in recent years. 

Credit Cards as Revolving Credit

So, where do credit cards come in? Credit cards are a form of revolving credit, allowing you to borrow money from a lender up to a certain limit. You can draw upon this line of credit as often as you need to, making purchases and making payments.

Most credit card lines range from $10-20K, but it can be more or less.

One of the benefits of using a credit card as revolving credit is the flexibility it provides. Unlike a traditional loan, where you receive a lump sum of money upfront and make fixed payments over time, a credit card allows you to borrow as much or as little as you need, whenever you need it. This can be especially useful for unexpected expenses or emergencies.

How Revolving Credit Works with Credit Cards

Credit cards work like a revolving line of credit, allowing you to borrow money up to a certain limit. You only have to make payments on the amount you’ve borrowed, often referred to as the minimum payment, and your balance carries over from month to month until it’s paid off.

It’s important to note that while credit cards offer flexibility and convenience, they can also be a double-edged sword. If you’re not careful, you can easily fall into a cycle of debt, where you’re constantly carrying a balance and accruing interest charges. This can make it difficult to pay off your debt and can negatively impact your credit score.

Credit Card Interest Rates and Fees

Heads up: While credit cards can be a useful tool for building credit and making payments, they can also come with high-interest rates and fees. It is crucial to read the fine print and be aware of any interest rates and fees associated with your credit card.

If you intend to carry a balance month to month, there are often better revolving lines of credit options than a credit card, like HELOCs or personal lines of credit. 

Interest rates on credit cards can vary widely, depending on your credit score and the type of card you have. Some credit cards offer low introductory rates, while others have high rates that kick in after a certain period of time. Additionally, many credit cards charge fees for things like balance transfers, cash advances, and late payments.

Managing Your Revolving Credit Utilization

To make the most of your credit card, it’s essential to manage your revolving credit utilization. This simply means keeping your credit utilization rate low, or the amount of credit you’ve used compared to the total amount of credit you have available. A high credit utilization rate can negatively impact your credit score.

One way to keep your credit utilization rate low is to pay off your balance in full each month. This will not only help you avoid interest charges but will also keep your credit utilization rate at zero. Another strategy is to increase your credit limit, which will lower your credit utilization rate as long as you don’t increase your spending.

Ultimately, credit cards can be a valuable tool for managing your finances and building credit, but they require careful management to avoid falling into debt. By understanding how revolving credit works and being aware of interest rates and fees, you can make informed decisions about how to use your credit card and keep your credit score healthy.

Installment Loans and Credit Cards

Credit cards and installment loans are two types of credit that you can use to finance your purchases. Credit cards are revolving credit, while installment loans are a type of loan where you borrow a fixed amount of money and pay it back over a set period of time with fixed monthly payments.

While credit cards are primarily revolving credit, they can act like installment loans in some cases. This is because some credit cards may offer installment plans for certain purchases, allowing you to pay off the balance over time with set monthly payments.

When Credit Cards Can Act Like Installment Loans

Credit cards can act like installment loans when they offer installment plans for certain purchases. These plans may have lower interest rates than your regular credit card interest rate, making them a more affordable option for financing large purchases. This has become an increasingly popular trend offered by more and more credit cards in recent years. 

For example, if you need to buy a new appliance for your home, you may be able to finance the purchase using an installment plan offered by your credit card company. This will allow you to pay off the balance over time with fixed monthly payments, making it easier to manage your budget.

Pros and Cons of Using Credit Cards as Installment Loans

While installment plans can be useful to help manage large purchases, remember that they are still attached to your revolving credit line and carry interest rates and fees. This means that if you don’t pay off the balance in full by the end of the installment period, you may end up paying more in interest charges than you would with a traditional installment loan.

On the other hand, using a credit card installment plan may be more convenient than applying for a separate installment loan. You can often apply for the installment plan directly through your credit card company and may not need to go through a separate application process.

Alternatives to Credit Card Installment Plans

If you’re looking for alternatives to credit card installment plans, consider other personal loan options such as secured or unsecured personal loans. These loans may have lower interest rates than credit card installment plans and may offer longer repayment terms, making them a more affordable option for financing large purchases.

Secured personal loans require collateral, such as a car or home, to secure the loan. Unsecured personal loans do not require collateral but may have higher interest rates than secured loans.

Before deciding on a financing option, be sure to compare interest rates, fees, and repayment terms to find the option that works best for your budget and financial goals.

Credit Cards Are Mostly Revolving Credit, But In Some Cases Offer Installment Plans

In conclusion, credit cards are primarily revolving credit, providing a line of credit that borrowers can use repeatedly. While they may offer installment plans for specific purchases, it’s crucial to keep in mind the interest rates and fees associated with them. Remember to make payments on time, keep your credit utilization low, and always read the fine print.

With these tips, you can make the most of your credit cards and manage them effectively.