Revolving Line of Credit
What is a revolving line of credit?
A revolving line of credit broadly refers to a predetermined amount of available credit that is extended to an individual, small business, or corporation by a bank or merchant. The nature of a revolving line of credit implies that as the debt is periodically repaid, it can once again be borrowed up to its previously established credit limit.
One of the more common examples of a revolving credit line is an unsecured credit card, though there are several other forms of revolving credit lines. Let’s take a look at how revolving lines of credit work.
How Does a Revolving Line of Credit Work?
With a revolving credit line, a lending institution grants a maximum credit line to an individual borrower who can utilize the revolving credit line for purchases and ongoing expenses, as well as for other purposes, such as overdraft protection. In the case of a small business, a revolving credit line can be useful for capital expansion or simply as a timely infusion for general working capital purposes.
In both instances, interest expense accrues and gets capitalized into the total obligation owed by the borrower. However, with regular consistent payments, not only can interest expense be mitigated, but it is also the case that a lender will often extend the amount of the revolving credit line as a track record of repayment is established.
Regardless, in all cases, the nature of a revolving credit line allows the debtor to borrow up to the amount of the credit limit as regular repayments are made, and the revolving credit line may be used repeatedly, provided that the maximum credit line is not exceeded.
Revolving Lines of Credit Allow for Flexibility
In the case of traditional loans such as home mortgages, auto loans, or student loans, funds granted are earmarked for specific purposes. For example, it’s not permissible to take money granted from an auto loan and utilize it for general home repairs.
These types of traditional loans also come with a defined repayment schedule involving a fixed or predictable monthly payment that is to be paid in full over a specified period of years. With a traditional loan, funds are disbursed up front – the borrower does not have any discretion as to when he may choose to receive any incremental amounts of borrowings.
However, revolving lines of credit work differently than traditional loans and offer greater flexibility in terms of timing and use of funds. A revolving line of credit actually represents an ability to access funds at a future date to be chosen by the borrower, who also enjoys far greater flexibility in determining how to allocate the funds as compared to those received through a traditional loan.
Simply put, money borrowed from a revolving credit line does not come with restrictions as to how it may be deployed – the borrower maintains complete flexibility as to how funds may be spent. Repayment becomes a function of the amount owed on the revolving credit line, with minimum monthly payments calculated once any borrowing has begun.
Advantages of Revolving Lines of Credit
For small businesses, revolving lines of credit usually offer more competitive interest rates than unsecured business credit cards. Meantime, revolving lines of credit can be more convenient and cost-effective than term loans, which require a lump sum payment to be made at the end of the term, and more useful than typical business loans, which do not allow for repeated borrowings after payments have been made, as is the case with revolving credit lines.
Additionally, the importance of having borrowings available when needed – whether due to unforeseen expenses, delinquent customers, equipment expansions or inventory pressures – makes revolving credit lines particularly appealing to small business owners.
Are you in debt? we can help
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...
No one really wants to go bankrupt, and neither did my family
No one really wants to go bankrupt, and neither did my family. But fortunately, we did not have to go that route. It was our last resort, but United Settlement helped us figure out a way around bankruptcy...
I had been through about 5 different credit counseling agencies before I found United Settlement
I had been through about 5 different credit counseling agencies before I found United Settlement. I had read through their reviews and made the decision to move forward with them. I also was so impressed...
Save time and money
Just what I needed, already had a company I was working with and I switched because I was able to same some money. Brian and Alfred were really nice and helpful
As a business facing some unwanted financial difficulties
As a business facing some unwanted financial difficulties, we were at a loss for what to do next when our debt started to soar. We took a closer look at our financial situation by contacting United Settlement....
I had no clue how to create a debt management plan
I had no clue how to create a debt management plan and in fact, I didn't even know what a debt management plan was. Fortunately, I reached out to United Settlement before I had too much debt to tackle....
Being burdened by debt is one of the biggest struggles we faced as a family
Being burdened by debt is one of the biggest struggles we faced as a family. But these people at United Settlement were very helpful in deciphering the different debts we had and then coming up with a debt...
Student loan debt was my worst enemy before I ran into United Settlement
Student loan debt was my worst enemy before I ran into United Settlement. I really thought I would just have terrible credit for the rest of my life because I will never get out from underneath it. It was...
- Credit Card Debt
- Credit Card Relief
- Credit Card Guide
- Credit card interest rate charges
- Credit and loan plans
- How To improve Your Credit Score
- Too much credit card debt
- Solving Your Credit Card Debt Problem
- Credit Reporting Agencies
- Credit Card Interest – Tax Deductable?
- Disputing a Credit Report
- Credit Card Balance Transfers
- How To Get a Free Credit Report