Lesson 14 of 25 · 7 min

Revolving against installment, on the same $12,400

The same starting balance is a demand-like revolving charge or a scheduled installment, two clocks.

Put the same $12,400 on two products. On a Wick & Pell card at 21.99 percent, monthly interest is $12,400 × 0.2199 ÷ 12 = $227.23, and principal is optional: the minimum from lesson 6 is a slice, not a schedule that retires the $12,400 on a stated date. On the Ashmere Personal loan, the payment is $411.27. First-month interest is $12,400 × 0.119 ÷ 12 = $122.97. Principal in that first payment is $411.27 − $122.97 = $288.30.

Same starting balance. Two clocks. The card is demand-like on the payment: what leaves the account this month is a formula, and the formula does not commit to a final month. The personal loan is a schedule: 36 remainders of $411.27, each one splitting into interest on the outstanding balance and a principal slice that grows as the balance falls. Track 1 lesson 12 is payable-on-demand applied to recall of the principal. This lesson is that distinction applied to the payment.

Lesson 3 already showed what a carried card does when interest capitalises. Lesson 13 already showed the personal loan's life-of-loan interest, $2,405.56. The comparison here is the first month, side by side. $227.23 of card interest against $122.97 of installment interest, and $0 of required card principal against $288.30 of scheduled principal. The $12,400 has not chosen a product. The two products have chosen two clocks for the same number.

Revolving is a balance whose payment is optional beyond a minimum. Installment is a balance whose payment is a remainder that already includes a principal path.

Key terms

Revolving balance: A demand-like carried amount. Interest is required in the minimum; principal is a slice, not a term.
Installment balance: A scheduled amount. Each payment is interest on the outstanding plus a principal slice that the formula already sized.
First-month split: On the personal loan, $122.97 interest and $288.30 principal. On the card, $227.23 interest and whatever principal the minimum, or any extra, contains.

Worked example

One principal, two first months

The same $12,400. Wick & Pell card at 21.99 percent. Ashmere Personal at 11.9 percent, payment $411.27, 36 months.

Card monthly interest: $227.23
Card required principal: Optional
Loan first-month interest: $122.97
Loan first-month principal: $288.30
Loan payment: $411.27

Same $12,400. The card's first month is $227.23 of interest with principal optional. The loan's first month is $122.97 of interest and $288.30 of principal.

Check yourself

The same $9,800 sits on a 21.99 percent card and on a 13.4 percent personal loan whose payment is $264.86. What is the card's monthly interest, and what is the loan's first-month split?

Revolving versus installment is a demand-like balance versus a scheduled one, Track 1 lesson 12's payable-on-demand distinction applied to the payment rather than to the recall. Open Demand loans, and what payable on demand means →

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.