Credit Cards are the Biggest Type of Revolving Credit
What is Revolving Credit?
Revolving credit is defined as any type of credit that has no set number of payments.
A simple way to understand revolving credit is a loan that can be taken and paid back any number times during the lifespan of the loan.
What is the most common example of Revolving Credit?
The most common example of revolving credit is the consumer credit card, which can be used indefinitely as long as the account is in good standing and has not expired.
In addition to minimum monthly payments, cardholders must pay interest on each monthly statement balance, in keeping with the terms of the credit card.
There are also firms that provide revolving credit to businesses and corporations.
Various revolving credit arrangements can stabilize the cash-flow and liquidity of a business or corporation.
What are the advantages of Revolving Credit?
If used responsibly, revolving credit can solve cash-flow problems at little or no expense to the debtor.
For example, gaps between everyday expenses and the arrival of paychecks can be covered with revolving credit, and if the balance is paid quickly and regularly, it is possible to avoid interest charges altogether.
For businesses, revolving credit can allow daily operations to continue even when cash-flow is a problem.
Are there any disadvantages to Revolving Credit?
If used carelessly, revolving credit can result in compounding interest and serious financial problems.
For example: If a credit card user reaches a maximum balance of $10,000 on a high-interest card, and subsequently pays only the minimum monthly payment, he or she will ultimately pay several thousand dollars over the course of years