Revolving Credit Card vs Instalment Credit: What’s the Difference?

With so many finance products out there in the market, it can be easy to confuse one with the other.

Understanding how different credit product works helps guide borrowers to the right finance solution for their needs.

If you’d like to learn more about the differences between a revolving credit card and instalment credit, keep reading as we explain the pros and cons of both.

What are revolving credit cards?

If the finance landscape isn’t one that you regularly traverse, chances are you may not have heard of the term ‘revolving credit’ before. Revolving credit is the term given to credit products you can access repeatedly. A business line of credit or personal line of credit are examples of revolving credit and so are credit cards. Now, even if you’re not a finance professional, you’ve probably heard of credit cards!

Revolving credit cards are the traditional credit card as you would know it, allowing you to make purchases up to a certain credit limit and then repay what you’ve borrowed when you receive your credit card statement, including interest charges.

There are a myriad of credit card types on the market today; everything from rewards credit cards, to cards with an interest-free period, discounted annual fee or low interest rate.

What does ‘instalment credit’ mean?

Instalment credit cards, on the other hand, are credit accounts that allow you to make purchases that are repaid over equal monthly instalments. Instalment plans have become popular in Australia over recent times, with many people drawn to being able to pay for everyday purchases over a fixed monthly instalment, which can help people budget.

Interest rates are only sometimes applicable on credit card instalment plans, with some companies setting the monthly instalment payment to include fees and charges in place of interest rates.

Credit card terminology explained

There’s a lot to know when discussing credit cards. Here are some of the most commonly used terms:

Cash advance

A credit card cash advance is essentially a cash withdrawal from your credit card rather than using the card to make a purchase. Cash advances may not be available with all credit card types, and a cash advance fee is often payable.

Balance Transfers

When you transfer part or all of your outstanding credit card balance to another credit card, this is known as a balance transfer. Balance transfers are often performed in an attempt by their holder to save money by accessing a new period of interest-free days. However, unless you can pay off your credit card debt within the interest-free period, the balance transfer credit card interest rate and fees will apply.

Balance transfer fee

A balance transfer fee is a fee charged to perform a balance transfer.

Credit limit

Your credit limit is the dollar limit of funds you can use on your credit card or instalment plan.

Annual fee

As the name suggests, an annual fee is the fee charged once per year in order to keep your credit account open.

Interest-free periods

Usually, on revolving credit cards, there is an interest-free period within each statement period. Depending on the type of credit card, you may start paying interest on your purchases after your interest-free days have ended or, if you still need to pay the full closing balance after the due date.

Is it better to have a revolving credit account, instalment plan or a Personal Loan?

Knowing which finance option is best for you can save time and prevent unnecessary credit applications from being recorded on your credit file. If you’re looking to make retail purchases or want a ‘backup’ option, a credit card or instalment plan may seem the more attractive option. However, whether you’re looking at a credit card account, credit card instalment plans or personal loans, your credit history and current financial position will affect your chances of approval.

What if I don’t have a very strong credit rating?

Your credit history plays a large part for lenders when determining whether to offer you credit products or not. If you have a poor credit rating, obtaining card approval or approval for personal finance applications can be tricky.

While many lenders do rely on solid credit scores, lenders who specialise in applicants with bad credit are more willing to look at your complete situation.

What is the average interest rate for bad credit finance?

Interest rates are determined by each lender individually  after assessing your finance application. It might surprise you that the Australian Finance Industry Association recently released research that showed the average annual effective interest rate on a credit card in Australia was 22%, and that the effective interest rates for other instalment plan providers ranged from 28.25% right up to 49%!

Can I access a bad credit loan to pay out my credit card account?

If the glitz and glam of fixed monthly instalments and credit card deals (such as earning bonus points on eligible purchases) has long worn off, you may find it challenging to keep up with the hefty repayments. One of your options could be to access personal finance from Finance One to pay out your credit card balance and start afresh.

The benefits of using a Personal Loan through Finance One

We often hear from our clients that they want to move away from performing multiple balance transfers to avoid interest charges. Instead, they want to simplify their personal debt by rolling it into one easy repayment. Not only does this make life a little easier to manage and less stressful, but rolling your credit card and instalment plan debt into one loan can make it easier to meet each and every repayment — consequently building your credit reputation for the future.

Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

Finance One means:
Fin One Pty Ltd – ABN: 80 139 719 903
Australian Credit Licence: 387528

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.