Flexibility or Predictability?

Understanding the difference between revolving and installment unsecured debt can help you make better financial decisions by choosing the right loan options to manage your finances. Here we will discuss both types of loans, and how a personal banker can help you make the right decision.
 

Understanding Unsecured Debt

With unsecured debt, there is no collateral backing the loan, so lenders extend credit based on the customer's creditworthiness. This includes factors such as credit score, income, and credit history. Due to the lack of collateral, these types of loans are generally priced higher than a secured loan. Common types of unsecured debt include credit cards, personal loans, and lines of credit.
 

What Is Revolving Unsecured Debt?

Revolving unsecured debt allows for continuous borrowing up to a pre-determined limit. As you pay down the balance of your debt, funds become available again, making this a flexible option for managing ongoing or variable expenses. Common forms of revolving unsecured debt include credit cards and personal lines of credit. Minimum payment requirements will vary based on the amount of credit you are using. Interest continues to accrue on any outstanding balance until it is paid in full.

Revolving unsecured debt does offer flexibility, but it can also lead to long-term financial stress if not managed wisely. You can borrow as needed, up to your credit limit, but debt can easily accumulate and become a burden if you are not careful.

Revolving unsecured debt is generally ideal for short-term spending or emergency needs. It's best to keep balances low and make more than the minimum payment if you are able.
 

What Is Installment Unsecured Debt?

Installment unsecured debt is borrowing a determined loan amount that you repay over a fixed period of set time. Loan proceeds are disbursed in a lump sum and repaid in equal payments over the defined term. With installment debt, monthly payments are predictable and typically include principal and interest.

These loans are generally easier to budget because of the structured payment terms. They are best for one-time expenses and ideal for large, planned purchases or consolidating other high-interest debt. Installment loans can be a great tool for managing medium-to-large expenses without the temptation to borrow more.
 

Why You Should Work with a Banker

Choosing the right type of debt repayment for your needs is not always straightforward. If you're unsure of which type of debt to take on, it's a good idea to speak with a banker, whose expertise can really help. They can guide you through the assessment of your financial goals, spending habits, and repayment ability.

A banker can provide customized advice and point you to solutions tailored to your unique financial situation. They can also provide information about interest rates and exclusive banking products as well as help with debt management strategies and long-term planning.

Understanding the differences between revolving and installment unsecured debt before you even visit the bank will help prepare you for the conversation and will ultimately help you better manage your finances. Just remember, although revolving credit provides flexibility, it can also carry long-term debt risk, while installment loans can provide structure and stability. Speak with your banker right away to get started on the right path.