What is a Revolving Line of Credit?

A revolving line of credit is a line of credit that is used on an ongoing basis. The phrase comes from a revolving door since the balance rotates and is paid on and off like a revolving door. Money is constantly flowing in and out between that revolving door which causes the fluctuations in the balance. Due to the revolving nature of these accounts terms a little bit more versatile and are not dependent on a single installment option like an unsecured loan.

Fluctuations in Revolving Lines of Credit

With lines of credit the terms of the account are more likely to change as opposed to a loan which tends to be constant unless of course it’s an adjustable interest rate (this are not used as frequently in loans as they used to be although they are still frequently used with many commercial loan/mortgage options). Commercial loans tend to have worse interest rates since they are higher risk and not the borrower’s main residence. Due to this the terms on them are usually more stringent and costlier than a residential mortgage or loan. Commercial lending is typically more difficult to acquire as well.

HELOCS

Home Equity Lines of Credit are revolving lines of credit that are secured to a home. Just like credit cards these accounts can be used on a revolving basis unless the lender decides to close the account on you due to non-use, which can happy quite often with these types of accounts. These loans are typically a lot harder to qualify for than a second mortgage.

Credit Cards

Credit cards are another form of revolving credit. These accounts revolve on a monthly basis and have set payback periods usually on a particular day of the month. Credit cards are the most common revolving line of credit that consumers carry. Consumers that use credit cards on a revolving basis and keep a $0 balance are the ones that are typically the ones with the best finances since they don’t pay monthly interest. However, if you do maintain a revolving balance you will pay interest on the amount that is leftover by the payment due date. The interest rate on credit cards is charged monthly.

Unsecured Lines of Credit

These accounts are similar to credit cards however they often don’t come with a credit card and have better terms than most credit cards. Consumers who have a personal line of credit with a bank usually have a good standing relationship with their bank. It’s nice convenient option to have for those who know their banking partners.

Unsecured lines of credit are different from installment loan accounts which have set payment arrangement. Otherwise although both accounts are for debt obligations consumers tend to utilize them in different manners.