Revolving Credit

What is Revolving Credit?

A revolving credit is also known as a flexible financial tool because it facilitates the borrower with an option of withdrawal, repayment and then withdrawal again whenever required. You can take a revolving credit loan if you find yourself in emergency financial need, it can be used to fulfil your business or personal requirements.

Revolving credits can be secured or unsecured. In case of secured revolving credit, the borrower has to collateral any of his assets and the lender can seize this asset in case repayment is not done. While in unsecured revolving credit the borrower has to give a personal guarantee.

Requirements to Get Revolving Credit

There are some factors that a company or lender considers before issuing revolving credit. It includes sources of income, financial stability and credit score. Financial institutions ask you to show your income statement, balance sheet, and cash flow statement to find your ability to repay the amount.

If you want to take revolving credit for your business, the requirements include a strong business with a reliable cash flow. The company will review your credit record, financial performance, and the value of assets you hold.

How Does Revolving Credit Work?

Once you are approved for revolving credit, the lender will then set a credit limit. It is the maximum amount that you can take as a loan. As you purchase something from this amount, your credit is lowered and then back up as soon as you repay it. A revolving credit allows you multiple withdrawals and repayments within a decided time period. You have an option to repay the amount along with interest in a single payment or monthly instalments.

You may have to pay additional charges including organisation fee, annual fee or fee for any late or missed payment.

Advantages and Disadvantages: