November 13, 2019

Revolving credit, what is it and how does it work?

If you need liquidity to make small purchases, have you ever thought about revolving credit? It is a solution that many adopt to postpone or postpone the payment of some expenses.

How the revolving credit works?

How the revolving credit works?

It is a credit line granted by a bank or financial institution. Similar to the credit line, it is combined with a credit card that allows you to make purchases.

Once activated, you can ask the toll-free number of the financial institution to transfer the amount you need to your account.

The repayment plan is monthly and the installment is established with the customer, who obviously has the obligation to pay the agreed minimum amount at the agreed deadlines.

Unlike the credit line and the normal balance credit card, the reimbursement of the amount used can be divided into installments, making spending more sustainable.

Interest applies only to the sums used: for which the credit institution does not receive anything only for making money available if it is not used.

A rechargeable credit is often referred to. When you use it, your availability decreases, but it automatically restores when you repay the installment. If, on the other hand, you do not use the credit, your availability remains intact.

Given its particular form, the revolving credit does not have a predetermined duration.

What are the conditions?

What are the conditions?

Revolving credit has specific conditions. First of all, no minimum use of the credit line is required (which therefore, as we said, if not used, remains intact).

The minimum amount that the holder is required to repay monthly is agreed in advance, you can choose from the 3 options provided: 3%, 4% or 5% of the credit line granted.

As with any other form of financing, when applying for a revolving credit, it is advisable to carefully evaluate the current cost associated with owning and using the services that this makes available to you.

In particular, consider:

  • the Nominal Annual Rate (TAN) and the APR (Global Effective Annual Rate);
  • any annual fees that may be requested by the lender;
  • other expense items, such as bank statement fees and stamp duty fees.

Is revolving credit a good solution?

Is revolving credit a good solution?

The main advantage of revolving credit allows you to have a source of credit available for a long period, always available in case you need it.

However, the interest rates charged for this form of credit are generally very high: the effective overall rate varies from 14 to 16%.

Since the repayment is charged directly to the credit line at maturity, it is important to be very careful not to drop it below the available balance, or you risk getting into debt. So always remember to check your monthly bank statement!

Here you are informed about the different types of revolving credit, make the choice that best suits you based on your economic situation!

written by Patricia Remaley - Posted in Credit


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