What's a revolving loan? Types and everything to know
What's the story
Revolving loans are a flexible financing option that allows borrowers to access funds as needed, up to a certain limit. Unlike traditional loans, which provide a lump sum and require fixed repayments, revolving loans offer ongoing access to credit. This can be particularly useful for managing cash flow or unexpected expenses. Understanding the different types of revolving loans can help you make informed financial decisions.
HELOC
Home equity lines of credit
A home equity line of credit (HELOC) lets homeowners borrow against the equity in their property. It works like a credit card, where you have a limit and can withdraw money as needed. The interest rates are usually lower than other forms of borrowing since the loan is secured by your home. However, it's important to remember that failing to repay could lead to losing your property.
Personal credit
Personal lines of credit
Personal lines of credit are unsecured, revolving loans offered by banks and credit unions based on your creditworthiness. They provide the flexibility to withdraw funds whenever required, up to a pre-approved limit. These lines generally have higher interest rates than secured options like HELOCs but don't put your assets at risk.
Credit cards
Credit cards as revolving loans
Credit cards also function as revolving loans, giving you the freedom to spend up to a certain limit and pay back the amount over time with interest if not paid in full each month. They are convenient for everyday purchases and emergencies but can come with high interest rates if balances aren't cleared promptly.
Business credit
Business lines of credit
For businesses, a line of credit provides flexible funding options without the need for immediate repayment like term loans. This way, businesses can manage cash flow gaps or invest in opportunities as they arise without committing to long-term debt obligations upfront.