What is Revolving Credit and How Does it Work?

Posted on Tuesday, June 25th, 2024 | By IndusInd Bank

Revolving credit is a type of credit that includes credit cards and other lines of credit. With revolving credit, you can borrow up to a predetermined limit, repay it, and borrow again as needed. 

Revolving credit is different from instalment credit. With instalment credit, you borrow a set amount and pay it back in fixed instalments. Personal loans or car loans are examples of instalment credit.

If you have a credit card, you are using revolving credit. Let’s learn what revolving credit is in detail and understand its various aspects. 

Understanding Revolving Credit

Revolving credit operates through a continuous cycle of borrowing, repaying, and re-borrowing.

Let’s understand its functioning with the following illustration: 

Imagine you have a credit card with a limit of ₹5 lakhs. You make a transaction amounting to ₹80,000. Now, you still have ₹420,000 available for further credit. When the bill arrives, you pay back the ₹80,000 you had used. 

If you repay the amount you have used, the available credit limit will become ₹5 lakhs again. However, there is another option as well. You can pay the minimum amount due on your credit card bill and carry forward the balance to the next billing cycle. With the second option, you are revolving the balance. Thus, you have continued access to your credit limit, but the unpaid balance accrues interest.

Key Benefits of Revolving Credit

If you use revolving credit, you can benefit from the following:

1. Flexibility

With revolving credit, you only borrow what you need. You also pay interest only on the amount used. Payments for revolving credit are also flexible. For instance, you can pay the minimum dues for a bill and allow the rest to get carried over to the next billing cycle. This can allow you to manage your repayments according to your financial situation.

2. Repeated Use of Credit

Unlike instalment credit, you can use revolving credit repeatedly up to the pre-defined limit. When you repay the borrowed amount, your credit limit is resumed to full again. It ensures ongoing access to funds.

3. Rewards and Privileges

Many credit cards offer rewards programs, exclusive offers, and other incentives. It can add value to your expenses and allow you to enjoy lifestyle benefits.

For instance, with IndusInd Bank Credit Cards, you can enjoy benefits such as:

• Reward points on everyday expenses.
• Travel privileges and discounts, such as insurance coverage and airport lounge access.
• Fuel surcharge waiver (up to a pre-defined limit).
• Complimentary movie tickets and much more.

4. Emergency Cash Reserve

Revolving credit can act as a financial safety net that provides funds for unexpected expenses or emergencies. It can allow you to handle such situations with peace of mind.

5. Improvement of Credit Score

Responsible use of revolving credit, such as timely payments and maintaining a low credit utilisation ratio, can positively impact your credit score.

Also Read: 5 Credit Card Features that Can Exclusively Benefit a Traveller Like You

Drawbacks of Revolving Credit

Despite its benefits, a revolving credit facility can have drawbacks if one does not manage it wisely, such as:

1. High Interest Rates

If you revolve your credit balance from one month to another, the interest on the unpaid amount keeps accumulating. It can lead to significant debt. Continuous use of the facility can also lead to a cycle of increasing debt.

2. Negative Impact on Credit Score

If you often miss payments or use your credit limit quickly, it hurts your credit score.

Conclusion

Once you understand the meaning of revolving credit, its benefits, and drawbacks, you will be better equipped to make informed financial decisions. While revolving credit can be beneficial in some aspects, it is crucial to use it with caution.

If you want to apply for a credit card, look no further than IndusInd Bank. With a 100% digital application process, exclusive rewards and privileges, and much more, IndusInd Bank ensures a seamless banking experience!

Apply Now for IndusInd Bank Credit Cards today!

Disclaimer:

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.