When it comes to securing finance, there are several factors to consider before applying. One of those factors is the type of credit repayment plan that would best suit you and your needs, which usually depends on what you need the credit for. While it seems that there are many options available, there are two fundamental types of credit repayments: instalment credit and revolving credit. In this post, we will detail both and help you decide which is best for you.

What Is Instalment Credit?

An instalment loan or credit is an account that has a predetermined end date and a set amount to repay. This type of agreement usually includes a repayment schedule, which shows you how much you need to repay in each instalment and details how the interest rate translates into a figure. These can typically be secured from most loans providers, whether you opt for a traditional or online lender.

Common instalment loans include:

  • Mortgages
  • Personal Loans
  • Student Loans
  • Car Loans
With each of these credit options, you know how much your monthly payment is and how long you will be making payments for. They are typically considered less dangerous to your credit score than revolving credit, as you can usually plan ahead for repayments and many lenders offer fixed interest rates.

What Is Revolving Credit?

Revolving credit differs quite drastically from instalment credit, and is characterised by a fixed credit limit. This limit is decided by you and your provider, depending on what you require the credit for, and it does not change when you make payments on your account. You can return to your account to borrow more money as often as you like, as long as you do not exceed your limit. As you are not borrowing a lump sum when the account is opened, there is no set repayment plan. You can borrow up to a certain amount and only repay what you spend.

Two of the most common forms of revolving credit are credit cards and lines of credit. They offer flexibility and freedom when it comes to spending, however, it is not uncommon for this type of credit to come with higher interest rates. The rate is rarely secured, so creditors are able to increase if you fail to make repayments.

Are There Any Other Options Available?

Due to the increase in online shopping, many platforms are now offering Buy Now, Pay Later, which is quickly being adopted across many retailers. With this type of payment option, the cost of a transaction is split into monthly repayments, which make a purchase seem more manageable. This differs from an instalment loan, as you will not be securing money to pay for the purchase initially. Instead, the overall cost of a purchase is broken down and spread out over a few months, which could make larger costs easier to manage. This can be found on a range of sites, but some of the most common industries that use this payment option include electronics, beauty, home furnishings, and sports and leisure.

To decide which of these options would be best for you, consider why it is that you need credit in the first place. Some types of credit are better than others in certain situations, so take the time to assess your needs and explore all your options. If you need any more help, please seek impartial support from the Money Advice Service.