Revolving credit is a form of borrowing that can be used repeatedly up to a set limit, paid down, and borrowed again, such as a credit card or a line of credit. There is no fixed number of payments and no set payoff date.
Revolving credit gives you a credit limit that can be drawn on, repaid, and drawn on again, with the available credit replenishing as the balance is paid down. Credit cards, personal lines of credit, and home equity lines of credit (HELOCs) are common examples. Because the balance can change over time, payments are usually calculated as a minimum based on the outstanding balance, and there is no predetermined number of payments or single payoff date. Interest is generally charged on the balance carried. Revolving credit contrasts with installment credit, which provides a set amount up front and a fixed schedule of payments to a defined payoff date.
With revolving credit, each payment frees up room to borrow again, so the account can be used over and over without a new application. Statements show the balance, the minimum payment due and the due date, and paying only the minimum keeps most of the balance, and the interest on it, in place from one statement to the next.
Common examples are credit cards, retail store cards and personal or home equity lines of credit. Their terms can change over time, and card issuers must give advance notice of certain changes under federal rules, which is why the account agreement and any change-in-terms notices are worth keeping.
Revolving accounts can also change after they are opened. Issuers may raise or lower a credit limit, and on many accounts the rate can change with an index or after a missed payment, subject to the notice rules that apply. Keeping the most recent account terms, not only the original agreement, is how a borrower knows what the account currently costs.
An example
A shopper uses a store card for a furniture purchase and pays part of the balance each statement. Because the card is revolving, the shopper can make another purchase before the first one is paid off. The balance never has to reach zero on a set date, so the total interest depends on how much is carried from one statement to the next and for how long.
Common misconceptions
Myth: Paying the minimum keeps a revolving account on track to be paid off soon.
In fact: Minimum payments are often small relative to the balance, so a revolving balance can last a long time and accrue more interest than expected.
Myth: Revolving credit and installment credit are the same once you have a balance.
In fact: An installment loan has a fixed schedule that ends at zero. A revolving balance has no set payoff date and changes with each new charge and payment.
Myth: A revolving account closes once the balance is paid.
In fact: Paying the balance to zero leaves the account open and available unless it is closed by the borrower or the issuer.
What to check
- How the minimum payment is calculated.
- Whether there is a grace period on new purchases.
- Which charges apply, such as annual or late fees.
- How long the current balance would take to repay at the minimum payment.
How this applies at Desert Rock Capital
Desert Rock Capital offers installment loans rather than revolving credit. If you are approved, you receive one amount from $100 to $3,000 and repay it in fixed biweekly payments on a set schedule. The loan is fully amortized, with no balloon payment, and you can pay it off early with no prepayment penalty.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.