Revolving Credit
BeginnerRevolving credit is a type of borrowing that lets you borrow up to a set limit, repay and borrow again as often as you like, without applying for a new loan each time.
Credit cards are the most familiar example of revolving credit. Personal lines of credit and some overdraft facilities work the same way. You have a credit limit, you can use any part of it and, as you repay, the available credit is restored.
For example, with a limit of 5,000, you might spend 1,200 this month, repay 800 and spend another 400 next month. Your balance changes constantly, and your required payment depends on how much you owe.
This differs from instalment credit, such as a car loan or mortgage, where you borrow a fixed amount once and repay it in set instalments until it is gone.
Revolving credit offers flexibility, but it can be expensive. Interest rates on credit cards are often high, and because there is no fixed end date, balances can linger for years if only minimum payments are made. How much of your limit you use, called credit utilization, can also affect your credit score.
Businesses use a similar arrangement, usually called a revolving credit facility.
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