Installment credit is a type of loan where you borrow a set amount of money with the agreement to make monthly payments of a fixed amount until the loan is completely paid off. Installment loans/credit can have a repayment schedule that lasts for months, or even years. It depends entirely on the type of loan you have, and who your lender is.
A home mortgage is a common type of installment credit, as is a car loan and a student loan.
The difference between installment credit and traditional revolving credit is that revolving debt has no end date. It can literally go on forever. Installment credit has a set end point that both parties (the lender and the borrow on) agree upon together.
Once the installments have been fully repaid, the loan is considered “closed.” A closed loan in good standing can stay on your credit report for a decade, and be a boon to your credit score.
How is Installment Credit Different from an Installment Loan?
That’s an easy one!
There is no difference. No difference at all.
The truth is that lenders who specialize in this kind of credit choose to call their product a “loan” so that they aren’t mistaken for being another credit card company.
Credit cards make money for the lenders by keeping you hooked into monthly revolving credit payments that never go away. Installment loans are a completely different thing, and it’s best to keep the two very separate.
But yes, installment credit and installment loans are exactly the same thing.
Why is Installment Credit to Superior to Credit Cards?
Is it better to be able to see the road in front of you as you drive? Is it better still to look at a map of the road first, so you know exactly where you are going?
These loans are no different than going for a drive. It allows you to look at a map of where your finances are headed. And then it allows you to see clearly every step of the way.