Revolving Line of Credit
A revolving line of credit is a line of credit with funds that can be spent again once repaid.
Most lines of credit, such as personal lines of credit, home equity lines of credit (HELOCs) and credit cards are revolving.
Interest is only accrued on the funds that you actually spend.
Revolving Line of Credit Definition
A non revolving line of credit is essentially a loan.
You get a specific amount of money, and you generally pay a fixed interest rate with regular monthly payments.
Once the funds have been spent, the money is gone.
Examples of non revolving lines of credit are student loans and mortgages.
Is a Credit Card a Revolving Line of Credit?
Yes, a credit card is a revolving line of credit.
The term revolving means that once you have paid back the funds you spent, you can spend them again.
Most lines of credit are revolving, including personal lines of credit and home equity lines of credit (HELOCs).
Line of Credit Definition
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What Is a Line of Credit?
Depending on the type of LOC, the client either receives a lump sum, or is allowed to “draw against” their line of credit to make purchases, until the credit limit is reached.
Typically lines of credit are given by banks, such as when an individual is issued a credit card.
What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving
Lines of credit will either remain open, or will close, once the loan has been repaid.
Revolving lines of credit are considered “revolving” because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.
In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.
Non-revolving credit usually has a lower interest rate.
How Does a Line of Credit Work? Secured vs Unsecured
Loans may be unsecured loans, or secured by collateral.
A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.
Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.