What Is a Revolving Credit Line?

A revolving line of credit can be very useful to have in a financial emergency or if you wish to quickly take advantage of investment opportunities. With a revolving line of credit, you have more financial flexibility. However, you should consider all of your options before using a revolving line of credit.

Definition

A revolving line of credit is a credit line given to a borrower by a lender. The borrower may use it whenever he needs it, up to the pre-approved amount.

Features

A revolving line of credit does not have a fixed payment schedule like a regular loan. The amount of the payment depends on the amount drawn upon the line of credit. There is no payment if no funds have been drawn.

Benefits

The main benefit of having a revolving line of credit is that it is available whenever you need it. It does not cost you anything if you have not used the line, and you can continue to use the line when you repay the balance. You do not need to go through a long loan process each time you draw upon the line.

Warning

Revolving lines of credit are useful, but do not depend on them. You should be able to pay back the line fairly quickly so you do not have high interest payments and have the line available to use in the future.

Fees

While you do not have to make payments if you do not use your line of credit, there may be fees to open and maintain your line of credit. Consider your usage of this line to determine if the fees are worth it.