Revolving Credit

In today’s article we will introduce you in a little more detail to a not so popular type of credit, which actually has many advantages over the others, namely the revolving credit. A revolving line of credit is a credit account that allows you to repeatedly borrow money up to a preset limit and repay the current balance in stages or in full. This way you can withdraw funds in an easier and more convenient way that suits your financial needs.

How does revolving credit work?

Once you apply for a revolving credit and are approved, you are given a specific credit limit. The credit limit is the maximum amount you can borrow. The more finance you use from your credit limit, the more your balance decreases. Accordingly, when you repay the amount, your balance is restored. A distinguishing feature about revolving loans is that they are open-end accounts, which means you can repeatedly withdraw funds and repay them over the term of the agreement. This makes revolving credit a comparatively more convenient option if you need working capital frequently rather than on a one-off basis.

What are the fees on the revolving credit?

They vary according to the lending institutions. In addition to the amount drawn on the loan, your monthly payments include interest and fees due on the current balance. With the revolving credit provided by Light Finance, you pay a minimum of the interest due by the fifth of the previous month to which the interest charge applies. That is, interest for the month of March is due from the 1st to the 5th of April. For this reason, your payments can often vary from month to month as the calculations are based on how much of your credit limit you have used. For more information on fees and comparisons with other financial products
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How is revolving credit different?

With standard consumer or home equity loans, you withdraw the entire amount in a lump sum and then pay it back over a period of time in set monthly installments. The plus side of this type of loan is that everything is fixed – you know how much you pay each month and for what period, which makes it easier to manage your budget. This type of loan is a good solution when you need the whole amount at once to buy a home, a car or to pay off a large debt. Once you repay the loan in instalments, your credit account is closed and you cannot withdraw money from it. You need to apply and go through the whole process all over again, including all the costs of taking out a new loan.

However, this very plus quickly turns into a minus if your circumstances are different. For example, if you had planned to renovate your home but have unexpected expenses, a revolving loan allows you to take out the amount you need and pay it off later by rebalancing your account. This is a quick and convenient solution to deal with unforeseen financial circumstances.

Another distinguishing feature is that with standard loans, you have a monthly payment that you must repay in full each month. Unfortunately, life often throws us into unforeseen situations and repaying the entire installment proves to be an overwhelming task, for which you may be charged late interest or other penalty fees. With a revolving credit, you must repay at least the interest on the amount used, which may be relatively small if the amount used in the previous month was also small. For this reason, it is important to note that interest is only charged on the amount you have borrowed and not on the entire amount you have access to, as is the case with standard loans. This gives you a “flexibility” in budgeting and determining what to pay on the due date.

Is revolving credit a good solution?

Revolving credit is a financial service designed for a specific type of customer. If you want to make a large purchase and therefore need a significant amount of money at once, as well as knowing how much you are repaying each month and over what period, then one of our standard loans is the better option.

In case you don’t need a fixed amount for something specific, but free access to capital as and when you see fit, then a revolving credit facility would be a better solution.

Прочетете на български: револвиращ кредит

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