The Difference between Revolving Credit and Line of Credit Pt 2
Usually, the best option for a customer/cardholder is to write a check for the full invoice amount, in order to avoid any and all financing charges. If he or she instead makes payments which keep debt “revolving” though, the lender might just agree to increase the maximum credit limit. This is another similarity that a revolving credit holds to a credit card scheme. In the above example, Michael would have to make decisions in each billing cycle, depending on his finance capacity or preference.
When it comes to a revolving account, there is no set monthly payment, but the credit length would be ongoing. A cardholder can make purchases as long as they do not exceed their spending limit, as well as make minimum payments each month. Sure, interest accrues and it is capitalized just like any other credit. However, the revolving payment option is appealingly flexible for customers.
An example of revolving line of credit is HELOC, which expands to Home Equity Line Of Credit. A pre-approved credit amount is given to the borrower according to the value of their home, which makes this a secure credit type. He or she can access the funds in their account in many ways – via check, transfer, or even a credit card connected to their account. The account holder only has to pay interest on the used money, and the HELOC account gives him or her flexibility to draw on their available line of credit when required.
Line of Credit
A line of credit is effectively a one-off arrangement. When a bank customer has spent the set credit amount, their account is closed. The “non-revolving” credit line has similar features to a revolving one. A lending institution sets a credit limit, the account holder can use funds for many different purposes, normally interest is charged, and he or she can make payments at any time.
There is a major limitation to this arrangement though. After no payment does the pool of credit available to you get bigger. After you pay off the credit line in full, your account is closed, and you cannot use it again.
Personal credit lines, another type of bank loan, are at times offered to customers in the form of overdraft protection plans. The customer of a bank can subscribe to a plan which is linked to their checking account. When he or she goes over the available amount in it, the overdraft keeps him or her safe from check- bouncing and payment denial. As with any credit line, the withdrawn amount has to be paid back with interest.