Credit Revolver and Revolving Credit - What Are They

30 January, 2024

When it comes to business and personal finance, credit plays an integral part in facilitating transactions and managing financial obligations. Revolving credit is a popular form of credit that provides borrowers with financial liquidity and flexibility. An important term linked to Revolving Credit is the credit revolver. Keep reading to know more about both and how they function.

What is a Credit Revolver?

A credit revolver pertains to a borrower. This borrower can be an individual or a company that maintains an ongoing balance through a Revolving Credit facility. They make minimum monthly payments, which are further used to pay interest and gradually reduce the principal debt.

The primary effect of being a credit revolver is that you pay interest. The interest rate keeps accruing as long as you carry a balance.

Simultaneously, with a revolving credit, you see a portion of your credit line getting freed up as you continue to make payments. For instance, a ₹5,000 payment towards your Credit Card bill will clear ₹ 5,000 on your credit line. However, note that this is not the same as freeing up the entire credit line by paying your dues in full. It is important that you avoid utilising the entire credit limit on all Credit Cards as it can impact your credit score.

What is Revolving Credit?

A revolving credit facility is a type of credit that does not have a fixed number of payments. It allows you to use a line of credit up to a specified limit. This means you can repeatedly access the credit as long as you do not exceed the set credit limit and continue making timely payments. A Credit Card is an example of a financial instrument that offers a revolving credit.

Notable Features of Revolving Credit

The following are some of the key features of a revolving credit that you ought to know:

• Flexibility
  
  As a borrower, you have the freedom to use the funds when needed. You only pay interest on the amount used.
  
  

• Continual use
  
  Typically, instalment credit comes with a set pay-off period. However, revolving credit lets you use the funds repeatedly.
  
  

• Fixed interest rates
  
  Interest rates in a revolving credit facility are fixed. The interest rate does not depend on external factors like the applicant’s creditworthiness, income or existing financial obligations.
  
  

• No Fixed Monthly Commitment
  
  You can make payments towards freeing your credit limit without any fixed commitments.
  
  

• No Pre-Closure Charges
  
  There is no tenure for a revolving credit. This allows you to free up your entire credit limit anytime; the card issuer will not levy pre-payment charges.
  
  

Perks of a Revolving Credit facility

The following are some of the main perks of revolving Credit:

• Continuous availability of funds
  
  With revolving credit, as you make the payments, an amount becomes available for spending again. This allows for a continuous cycle of spending and repayment. It ensures ongoing access to funds as long as the credit limit is not exceeded.
  
  

• Improvement of credit score
  Responsible use of revolving credit, like making timely payments and not exceeding the credit limit, can positively impact your credit score. It demonstrates to credit bureaus that you can manage credit responsibly. This could potentially lead to improved creditworthiness and better loan terms in the future.
  
  

• Emergency cash reserve
  
  Revolving credit can serve as a valuable emergency cash reserve, providing a safety net for unexpected financial challenges. It can bridge gaps in cash flow, cover medical emergencies, or address sudden repairs, offering peace of mind and financial security.
  
  

• Rewards and incentives
  
  Credit Cards, a type of revolving credit, come with rewards programmes, cashback offers, or other incentives.
  
  

• Business working capital management
  
  Revolving credit is an effective tool for managing working capital needs for businesses. It helps smooth out cash flow fluctuations, ensuring operations continue smoothly even during periods of lower revenue.
  
  

When Can You Use a Revolving Credit Facility?

You can use a revolving credit facility for the following:

• Personal Expenses: You can manage day-to-day expenses and unexpected costs such as medical bills, car repairs, or home maintenance. It provides immediate access to funds to cover these unforeseen expenses.
  
  

• Business Operations: Businesses often use revolving credit to manage cash flow fluctuations and ensure they have sufficient funds to cover their expenses, especially during slow revenue periods.
  
  

• Daily Expenses: You can use revolving credit, like Credit Cards, for everyday purchases such as groceries, utility bills, and dining out, and then pay off the balance monthly.
  
  

Bottom Line

A revolving credit can be an indispensable financial tool that can cater to the changing financial needs of yourself or your business. Enjoy these perks and more by opting for an HDFC Bank Credit Card today. With HDFC Bank Credit Cards, you can enjoy a longer interest-free period, rewards and cashbacks, lifestyle perks and more. Get started here.

*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.