Revolving credit is a type of credit policy, which usually materializes through a means of payment known to all, such as credit cards.
The revolving credit is that operation for which the financial entity makes available to the consumer (individual or company), a certain amount of money that can be available in part or in full as many times as desired, always within the limit settled down. The best known limit is that of credit cards.
Short-term financing tool with caution
Credit cards can be considered very useful tools to deal with certain unforeseen events or extraordinary expenses that were not available. With them, we will always have at our disposal an economic amount or a mattress to throw when something is twisted. There are several types of cards in the market. We must choose the one that best suits our profile.
Most usually have an operating system that consists of paying (returning), after a month, what you have used. However, some contemplate the possibility that it is the client who chooses his form of payment, being able to divide the debt into different terms and amortizing early according to the volume of income of each month.
This situation can mean a double-edged sword, since on the one hand, we have a financial support to go to if necessary, but on the other hand, if we do not manage it properly and choose the option to indefinitely postpone our debt, it can become a real headache.
The most optimal behavior would be that in which we make use of the funds for an unforeseen expense, and the following month we return absolutely everything we have used. In this way, we will have the entire limit available again for another possible setback.
Let us then analyze the different advantages and disadvantages of granting a revolving loan by a financial entity.
Advantages of a revolving credit
This means that only interest will be paid for the amount of money used and not over the total credit limit granted. On the contrary, if no use is made, the cost is zero.
Another advantage in terms of cost savings is that this type of operation does not require formalization before a notary public, since it is signed directly with the entity that grants it.
Cash availability is immediate. This means that once the financial institution has approved the operation, we can make use of the amount from minute one.
On the other hand, while the debt is being replenished, the limit will be restored again and can be used as many times as desired, without needing to need the approval of the bank again.
Possibility (some cards), to postpone the debt and decide the amount to be paid each month based on personal income. It also allows paying off the debt in advance.
On the other hand, we can use them as a means of payment for any purchase in the digital world, which taking into account the way of consumption today, is an advantage.
Disadvantages of revolving credit
As we mentioned before, the interest rates payable are not fixed but vary depending on the amount we use, this can mean a double-edged sword and end up bearing more expenses than we initially calculated.
If we do not properly manage our revolving credit we can find ourselves in a spiral of indebtedness. Therefore, the key is to be fully aware that it can be a very useful means of payment provided it is used for contingencies and not for usual expenses.
As in any financial operation, common sense becomes an essential protagonist for a correct relationship between the financial entity and the beneficiary.