Sunday, 13 July 2014

Advantages and disadvantages of a revolving loan

Revolving credit is often mistakenly identified with the overdrawn, but are in fact two different financial products, having only similar functionality. What is a revolving loan and what are its advantages and disadvantages?

Revolving credit is a loan inextricably linked to the personal account, which very often is treated as a standard part of the package of services offered under the contract for a savings - billing. The financial institution provides the account holder so constantly available credit limit by a certain amount. For example, if our current account balance is 500 , and we were allocated a revolving credit limit of 2000 , it can actually have a total amount of 2,500 .

The advantages of a revolving loan

The most important advantage of this type of loan is just its renewability, or the possibility of its re-use without the need to sign separate loan agreements. Avoid so that each time our credit checks and often protracted procedures for the award of funding. Establishment of sustainability is based on the principle that if we will use part of the allocated limit, any further payment on account reduce our debt, and yet again increase the available borrowing under the limit to use. This feature is also associated with another advantage of this solution, ie, interest will be calculated only on the utilized portion of the loan, not the entire granted us in his part of the amount. So in fact we pay only for the amount borrowed and the interest will accrue from it until you pay off the debt. Even if you do not repay it once, then every minor amount of the loan payment and thereby reduce the amount of interest charged on the actual value of the debt.

Cons revolving credit

Revolving credit is a tool commonly used, however, for its award may count the most, only people with good personal account of history that provide a systematic influence on the bill account. So in fact, the service will not be able to benefit persons whose income are recorded on an irregular basis. In addition, income level will also affect the value of the credit limit, so those earning relatively much can not expect to grant wielotysięcznego credit limit. The main drawback, however, is a revolving loan paradoxically continued availability offered us cash, which makes this solution should rather use those responsible, who are able to resist the temptation of unnecessary extravagance. Revolving credit should therefore be treated as security for a rainy day, and not as a source of extra cash, which is used only to finance our desires.

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