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What is Non-Revolving Credit?
Non-revolving credit is a type of credit that provides a borrower with a fixed loan amount that must be repaid through scheduled payments over a set period of time. Once repaid, the credit does not automatically renew, unlike revolving credit such as credit cards.
Definition
Non-revolving credit is a fixed-term loan with a predefined borrowing limit, repayment schedule, and end date, where funds do not replenish after repayment.
Key takeaways
- Fixed borrowing amount: Borrowers receive a lump sum.
- Set repayment schedule: Regular instalments over a defined period.
- Does not renew: Credit cannot be reused once repaid.
- Lower interest rates: Often cheaper than revolving credit.
- Used for large purchases: Suitable for vehicles, appliances, education, etc.
How non-revolving credit works
- Borrower applies for a fixed loan.
- Lender evaluates creditworthiness.
- Lump sum is disbursed.
- Borrower repays in instalments (principal + interest).
- Loan account closes upon final payment.
Examples of non-revolving credit
- Personal loans
- Auto loans
- Student loans
- Mortgage loans
- Installment financing for appliances or electronics
Benefits of non-revolving credit
- Predictable repayment schedule
- Lower interest compared to credit cards
- Encourages financial discipline
- Suitable for long-term planning
Drawbacks
- Less flexibility than revolving credit
- Fixed payments may strain cash flow
- Early repayment penalties in some cases
- Requires strong creditworthiness for favourable terms
Non-revolving vs. revolving credit
| Feature | Non-Revolving Credit | Revolving Credit |
|---|---|---|
| Borrowing limit | Fixed | Flexible, replenishes |
| Repayment | Instalments | Minimum payments |
| Reuse of funds | Not allowed | Allowed |
| Examples | Loans | Credit cards, credit lines |
Related concepts
- Installment loans
- Revolving credit
- Interest rates
- Credit score
- Loan amortisation
Sources
- Federal Reserve – Consumer Credit Reports
- OECD – Household Debt Insights
- Investopedia – Non-Revolving Credit Guide
Frequently Asked Questions (FAQ)
Can I reuse a non-revolving loan once repaid?
No. You must reapply for a new loan.
Is a mortgage non-revolving credit?
Yes. It has a fixed amount and term.
Do non-revolving loans improve credit score?
Yes, with consistent on-time payments.
Are interest rates fixed?
They can be fixed or variable depending on the loan type.
Is non-revolving credit good for emergencies?
Not ideal, revolving credit lines are more flexible.
