As payments are paid on non-revolving credit plans, further credit is not extended (unlike in a revolving credit plan). An example of non-revolving credit would be a car loan. In a car loan, credit is extended and repaid through a fixed installment plan. In the case of the majority of car loans, borrowers repay the loan over the course of 5 or 6 years.
As the payments are made, additional credit is not extended. Once the payments are finished, then the borrower no longer owes any more money. Another example of non-revolving credit would be a student loan.
Installment selling started with things that cost more than ordinary purchases and lasted for a long time. The main reason for this was that the seller could protect themselves against loss on such articles by taking them back if the buyer fell too far behind on their payments. Obviously this right wouldn’t be worth much if the goods had been consumed or had shrunk greatly in value.
As the installment system has become more and more popular, it has become possible to buy some things that are more quickly worn out, such as clothing, on the installment plan. One result of this development is that it is easier and easier to get into debt. It remains true, however, that installment selling is more commonly used for things that have a high cost and a long life.
Since installment credit does not increase the buyer’s income, and since most of it is granted for buying expensive long-lasting goods, the net result must be to cut down the amount of money that the buyer has available for such ordinary expenses of living as food and drink, amusements, and travel.
Manufacturers of automobiles, radios, and many other high-cost goods often state that installment credit has done wonders in expanding their sales. That is true, but it has accomplished this by diverting expenditures from other things not sold on the installment plan.
It is also true, of course, that the larger sales of these high-cost goods have helped to bring about mass production, which in turn has greatly reduced the cost of these articles. Sometimes it is contended these price reductions more than offset the cost of the installment credit.