This is because a revolving credit is very flexible and in many cases has very favorable conditions. Yet there are still many questions about a revolving credit; what exactly is it, how does it work and what are the benefits.
What is a revolving credit?
A revolving credit is a loan with very favorable conditions. When a loan meets the following characteristics, it can be called a revolving credit. The loan must have a variable duration and a variable interest, the possibility of early repayment must be present, the loan must have a flexible installment and the amount already repaid must be able to be borrowed again.
When taking out a revolving credit, a maximum loan amount is set. Within the limits of this amount you can withdraw and repay at your own discretion, a revolving credit can actually be compared to an extra salary. The interest is only paid on the total amount withdrawn, which is a fixed period of, for example, three months, so if nothing has been withdrawn for a period of time, no interest has to be paid.
What are the benefits of a revolving credit?
There are many advantages to a revolving credit compared to other types of loans. The biggest advantage of a revolving credit is that within the limits of the maximum amount you can borrow and repay how often, when and how much you want. From a technical point of view, a revolving credit is an extra bank account, so borrowing can easily be done by debit or transfer via the bank.
A revolving credit can be very beneficial due to the variable interest. The interest rate depends on the market and can therefore rise but also fall during the term. In addition, interest is only paid on the amount actually borrowed within a set period. This means that the term of the loan can be divided into periods of, for example, three months. If a loan is made within that period, interest will also be paid. If nothing is borrowed, then no interest has to be paid.
With a revolving credit, an amount repaid can be taken up again within the term of the loan. Therefore, if part of the loan amount has already been repaid and an unforeseen cost item arises, it is possible to borrow again. This is not possible with other types of loans. Very handy when the loan is taken out for, for example, a renovation.
How much can I borrow?
With the revolving credit the question is how much can I borrow? another meaning. How much can I borrow provides insight into how far I can go. This form of credit, however, offers the possibility to bypass the question ‘how much can I borrow’, because the amount repaid can also be withdrawn. It may therefore be that one has enough for a smaller amount or that the revolving credit is used as a kind of money box. You can redeem but you can also borrow again. So here is how much I can borrow from an entirely different order than from a personal credit or credit for financing a new car. It takes a little time to sort things out and to compare them, but it certainly pays.