Definition of Revolving Credit
What is revolving credit? What is the definition of the term revolving credit?
There are two types of credit - revolving credit and non-revolving credit.
Revolving credit is when borrowers have access to a certain amount of money that doesn't require a final date to be paid off. As payments on the outstanding balance are made, more credit becomes available.
For instance, a credit card is a type of revolving credit.
Let's say that you have a credit card with a $10,000 limit. You charge $5,000 over the course of the month, which leaves you with available credit of $5,000 by the end of the month.
If you pay off the full balance at the end of the month, then you are back to having $10,000 in borrowing power on your credit card. This is revolving credit.
An example of non-revolving credit is a car loan. With a car loan, you have a set amount of payments that need to be made until the car is yours. Once the car is paid off, there is no more credit available, and your loan is completed.
An example of revolving credit is a HELOC (home equity line of credit).
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