Revolving vs. Non-Revolving Credit: How Are They Different
One of the most common questions asked when building credit is what is the difference between revolving and non-revolving credit. Both have their advantages and disadvantages, but they accomplish the same goal, to build your credit score up. Which one is the better option?
Non-revolving credit is a loan that doesn't change, and your payment is at a fixed amount. The amount dollar you borrow usually starts at a certain amount, and as you pay it off, that amount decreases. It never goes back up. For example, let's say you borrowed $10,000 to purchase a car. You agreed to make monthly payments of $150. This type of loan would be considered non-revolving. The most common types of non-revolving loans are Car Loans, Mortgages, Student Loans (depending on the type of loan you get).
A revolving credit is a loan that does change, and based on how much you owe, your payment amount differs. For example, let's say you're going out to lunch today, you pay your bill, $20, to your credit card. The current amount you owe has gone up to $20. At the end of the month, you pay it off, and now you owe $0. The following week you charge up your credit card, $50, and so forth. What makes this a revolving loan is your principal (the amount you owe) is ever-changing. The most common types of revolving loans are Credit Cards, Personal Lines of Credits, Home Equity Lines of Credit (Heloc).
Advantages of Non-Revolving Credit
The advantage of taking out a non-revolving loan is the safety that comes with it. When you sign over the documents, you will know ahead of time the amount you owe and your monthly payments. The people who also opt-in for this option also spend lower amounts of interest over time.
Advantages of Revolving Credit
The power of revolving credit is the amount of flexibility the user has. The amount owed is based on how much the user spends. Payments are also calculated the same way, based on how much the user owes their monthly payments can go up or down.
The difference between revolving and non-revolving credit is if your principal goes up or down. With something like a credit card, the amount you owe will go up every time you spend and will go down every time you pay it. Unlike a mortgage or a car loan, the amount you owe is at a set amount, and your monthly payments are the same monthly. We hope you enjoyed our blog on revolving vs non-revolving credit, as always if you're looking for Moore homes for sale, check out our page!