Recently, I’ve noticed that many people have been discussing how to borrow money more cost-effectively. In fact, there are mainly two routes: installment loans and revolving credit. Both have their own pros and cons, and if you choose the wrong one, you may end up paying a lot more.

First, let’s talk about installment loans. You receive a lump sum of cash all at once, and then you repay it according to a fixed repayment timetable—each month you pay the same amount. These loans can be secured or unsecured. Secured examples include a mortgage and an auto loan, while unsecured loans—like personal loans—don’t require you to put up assets as collateral. The biggest advantage of installment loans is that the interest rate is fixed. That means you can work out in advance exactly how much you’ll have to repay in total, which makes planning easier. Banks usually provide an amortization schedule that details, for each installment, how much of your payment goes toward interest and how much goes toward principal.

Revolving credit is different. It’s a credit line: you can borrow within the limit at any time, and you can repay at any time. Credit cards and home equity lines of credit (HELOC) both fall into this category. Revolving credit can also be secured or unsecured. Credit cards are usually unsecured and only require a credit check. Secured revolving credit—such as a HELOC—uses your property as collateral. The interest rate on revolving credit is typically variable and will change based on market indices.

With revolving credit, although the ideal scenario is to pay it off each month, it’s not required. You can pay only the minimum payment, and the account can still be kept in good standing. For example, if your credit card balance is 10,000 and the minimum payment is 2%, then you only need to pay 200. But the trade-off is that you’ll pay higher interest, and over time the debt can pile up.

In terms of application difficulty, both options are fairly convenient. Installment loans may offer online pre-approval or pre-qualification, and the funds can arrive quickly—sometimes in a few days. Revolving credit also supports online applications, and approvals can be fast; some may even not require a credit check.

However, there are differences in cost. Installment loans may have application fees. For example, mortgage payoff fees are often 3%-6% of the loan amount, and personal loan origination fees may fall between 1% and 8%. With secured loans, if you can’t repay, you may lose the collateral. Revolving credit has its own pitfalls too. Credit cards may charge annual fees (some start from 49 dollars), and if you take cash advances from a credit card, there may be additional fees; the interest rate is also higher. HELOCs are flexible, but there may be closing costs upfront.

So when should you use which one? If you’re undertaking a project with uncertain costs—such as home renovations where you don’t know how much the final bill will be—revolving credit is a better fit, because you can borrow as you need. But if you know exactly how much you need—like buying a car or paying medical bills—installment loans are more reliable. A fixed repayment plan lets you manage your finances more steadily, and the interest rate is easier to predict. Especially for large purchases, installment loans often provide more affordable monthly payments.

Overall, whether you choose an installment/personal loan or revolving credit comes down to your borrowing purpose and your ability to repay. If you understand the differences between these two options, you can save yourself a lot of money.