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What is revolving credit?

Fri 20 November 2020

What is revolving credit?

It’s a strange-sounding term that you may not have come across before. But most of us use it every month without thinking about it. 

Which begs the question, what is revolving credit? Find out more in Morses Club’s latest blog…

It’s simple, really

Simply put, a revolving credit account lets you repeatedly borrow against and pay off a line of credit without having to apply for a new loan every time.

Revolving credit allows you to borrow money as and when you need it. It's a flexible way of borrowing because the amount of available credit decreases and increases as funds are borrowed and then repaid.

With a revolving credit facility, you can make a minimum payment each month and carry (or ‘revolve’) the rest of the debt over from one month to the next. 

You can access funds until you’ve borrowed up to the maximum amount you’ve agreed with the lender - which is also known as your credit limit. 

Overdrafts and credit cards are examples of revolving credit used by everyday consumers, so the chances are that you’ve been using it for years already.

Having access to a revolving credit facility can help you manage your monthly finances and cover unexpected emergency expenses.

But of course, when you use a revolving credit facility, it’s likely you’ll have to pay interest.

The balance on a revolving credit account includes the total amount you’ve borrowed plus a number of charges, such as interest and monthly fees. 

You should try to only borrow what you need to cope with emergencies and unforeseen costs and repay it once your income or expenses are back on track.

Revolving v non-revolving credit - what’s the difference?

As well as a revolving credit facility, there’s another kind of borrowing that you’ll be familiar with by another name.

With a non-revolving instalment loan, you borrow a fixed amount of money in one lump sum and then repay it, plus interest, in instalments over an agreed period of time.

Once you’ve paid off the loan in full, your account is closed by the lender and if you need to borrow more money, you must apply again.

Examples of non-revolving instalment loans include doorstep loans, bad credit loans, car loans, mortgages or student loans.

The major positive for consumers using non-revolving credit is that you always know how much you'll pay every month, making it easier to plan and budget.

The downside is that non-revolving instalment loans aren't as flexible. 

If money is tight for whatever reason, you can't make a smaller payment on a car loan or mortgage, you must make the full regular monthly payment. 

On revolving UK credit accounts, you could just make the minimum payment to give yourself some breathing space.

What about my credit score?

If you manage your revolving credit facility well, then you may improve your credit score. 

Making late payments may harm your creditworthiness, but paying all of your obligations on time every month should improve your credit score.

If your credit score remains poor, some companies offer bad credit loans, so do your research before you apply.

If you can improve your credit score, then the chances are when you next apply for revolving credit you won’t have to consider a bad credit loan.

Hopefully, you now know a little more about revolving credit!

Morses Club specialise in small cash loans to help with unexpected expenses. Our loans aren’t right for everyone, and you should only borrow what you can afford to pay back. If you would like to find out if a Morses Club cash loan is right for you, read our FAQs for more information.

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