What is a revolving loan?

There are many credit products on the market. One of them is a revolving loan, which is suitable for entrepreneurs or smaller companies, but it is also important for private individuals. This is a kind of short-term consumer loan that can be re-started without the need to conclude a new contract if specific conditions are met. What parameters does a regular revolving loan have and who offers it?

Revolving credit can be seen as a certain financial reserve. At the moment, it is possible to draw all or part of the loan. If there is currently no need for a financial injection, the loan will not be drawn and no monthly installments will be paid.

The loan repayment is most often in the form of regular monthly installments. However, some revolving credit providers also allow for a one-off repayment of the entire loan, without any charge or penalty. Revolving credit typically involves setting a minimum repayment that depends on the overall credit line.

Usual parameters of revolving loan

Usual parameters of revolving loan

The principle of a revolving loan is primarily that it is not necessary to constantly sign new and new contracts. It is sufficient that the client repays the agreed part of the outstanding amount and can borrow again under the same conditions, up to the agreed credit line. Without unnecessary approval process, therefore without delay.

The interest they pay in connection with a revolving loan is not one of the lowest in the market, but is definitely lower than that of various quick or micro loans. Moreover, of course, interest is charged only on the amount drawn, not on the entire pre-approved limit.

A revolving loan can serve as a financial reserve, which is always available for unexpected expenses.

Very often, a revolving loan is confused with an overdraft, but both financial products are different. First of all, the overdraft is provided for a non-purpose purpose, while the revolving loan is purpose-built.

A revolving loan is not tightly linked to a specific bank account. The spent money can be used, for example, as financial assistance to pay, quick credit for the purchase of a broken mobile phone, computer or other electronics and for other unexpected expenses. Usually, a revolving loan is provided in the tens of thousands of crowns.

Entrepreneurs most often use revolving credit to bridge the period between invoicing and maturity of receivables. Very often, however, companies also negotiate it as an operating loan, thanks to which they can make purchases of supplies and materials even at a time when they are not doing business.

The advantages of a revolving loan are already clear from the above description. But what are the disadvantages? Probably the most frequently mentioned in this context are very high credit management fees and high penalties in case of late payment. A revolving loan is a practical case where the value of the interest rate is not as significant as above APR.

Providers of revolving credit

Providers of revolving credit

What is a revolving loan has already been written. But who offers it? These are both banking and non-banking institutions. The latter provider offers a non-purpose revolving loan.

Very often, a revolving loan is associated with the offer of a credit card, which makes it possible to pay directly from the withdrawn money to the merchant. The funds can be drawn in addition to the purchase by cash withdrawal or transfer to another account.