Legal Definitions - noninstallment credit

Noninstallment credit refers to a type of borrowing where the repayment schedule does not involve a series of fixed, regular payments (known as installments). Instead, the borrower might be required to pay the entire amount borrowed by a specific date, or they may have a revolving line of credit that allows for flexible repayment amounts, often with a minimum payment requirement.

Here are some examples to illustrate noninstallment credit:

• Credit Card

  Scenario: Sarah uses her credit card throughout the month to pay for groceries, gas, and online subscriptions. At the end of her billing cycle, she receives a statement showing her total balance, a minimum payment due, and a due date. She has the option to pay the full balance, the minimum payment, or any amount in between.

  Explanation: This is a classic example of noninstallment credit because Sarah is not obligated to pay a fixed, regular amount each month. Her repayment is flexible; she can choose how much to pay (above the minimum), and her available credit line replenishes as she pays down the balance. This flexibility, rather than a set installment plan, defines noninstallment credit.

• Short-Term Bridge Loan

  Scenario: A small business owner, Mark, needs quick access to funds to cover a temporary cash flow gap while waiting for a large client payment. He secures a short-term bridge loan from his bank, agreeing to repay the entire principal and interest in 60 days when the client payment is expected to arrive.

  Explanation: This loan is an example of noninstallment credit because Mark is not making a series of smaller, regular payments over time. Instead, the entire borrowed amount, plus interest, is due as a single lump sum on a specific future date, rather than being broken into installments.

• Overdraft Line of Credit

  Scenario: David has an overdraft protection line of credit linked to his checking account. One month, he accidentally overspends, and the bank automatically draws from his overdraft line to cover the transaction, preventing a bounced check. He then repays the amount used from his next paycheck, plus a small fee, without a fixed monthly payment schedule for the overdraft.

  Explanation: This illustrates noninstallment credit because David isn't making predetermined, regular payments to clear the overdraft. He repays the amount used from the line of credit, often with interest or fees, but the repayment is flexible and not structured into a series of fixed installments. The line of credit is available as needed and repaid as funds become available, rather than on a strict installment plan.