Introduction
A revolver refers to a borrower—either an individual or a company—who carries a balance from month to month via a revolving credit line. Borrowers are only obligated to make minimum monthly payments, which cover interest and gradually reduce the principal debt. Corporations often utilize revolvers for funding working capital needs, such as covering payroll and other day-to-day expenses.
A revolver is sometimes referred to as a revolver loan or revolving debt. Revolver loans typically have fixed interest rates and are commonly associated with business loans, whereas revolving credit lines often come with variable interest rates that can fluctuate based on market conditions.
Key Points
- A revolver is an individual or company that carries a balance month-to-month through a revolving credit line.
- The concept stems from revolving credit, a type of financing allowing a borrower to maintain an open credit line up to a set limit while making minimum monthly payments based on usage and interest rate.
- In contrast to revolving credit, non-revolving financing involves a lump-sum payout that must be paid back through fixed scheduled payments.
- Attractive terms, such as low introductory rates and rewards, make revolving credit lines appealing to both consumers and small businesses.
A Deep Dive into Revolvers
A revolver springs from the concept of revolving credit, a popular form of financing. Individuals or businesses can open lines of credit—which can be as simple as a credit card account—where the issuer provides a specified level of credit over an indefinite period of time. Credit card companies benefit significantly from revolvers, who may keep their accounts active for prolonged durations.
Comparing Revolving and Non-Revolving Credit
Revolving credit lines bring flexibility and an element of continuous accessibility to funds. Non-revolving credit, by contrast, involves a single payout that the borrower must repay through consistent monthly payments over time. Revolving credit lines necessitate minimum monthly payments based on the balance and agreed-upon interest rates, while non-revolving debts entail more rigid payment structures.
1$1.28 trillion
2The total outstanding revolving debt in the US as of Aug. 2023, according to the Federal Reserve.
In addition to consumers, businesses also take advantage of non-revolving loans to fund new ventures or large purchases, such as homes or automobiles. Though the approval standards for both loan types are generally stringent, revolving credit lines tend to have more straightforward application processes. The rise of fintech innovations has considerably improved access to both types of credit, especially for populations that traditionally lacked banking services.
Important Considerations: Revolving Credit Payments
Revolving credit often draws consumers and small businesses due to enticing introductory rates and reward benefits. Each payment made reduces the outstanding debt, thus making more credit available for future use. Importantly, as long as the borrower stays in good standing, the line of credit remains accessible indefinitely.
Frequently Asked Questions:
Does a Revolving Line of Credit Have a Higher Interest Rate Than Non-Revolving?
Typically, installment loans, a form of non-revolving credit, have lower interest rates in comparison to revolving credit lines.
What Are Some Examples of Revolving Personal Credit?
Common forms of revolving credit accounts include credit cards, personal lines of credit, and home equity lines of credit.
Are Revolving Credit Accounts Secured or Unsecured?
Revolving credit accounts can be either secured or unsecured. For instance, a home equity line of credit is secured by the home’s equity, while a credit card is generally unsecured.
Conclusion
The term ‘revolver’ can denote either the revolving credit account itself or the borrower utilizing such an account. Revolving credit presents a flexible spending option over time. However, it’s important to remain cautious, as high-interest rates can lead to unintended overspending, particularly with revolving accounts like credit cards.
Related Terms: credit line, revolving account, non-revolving loan, fintech, home equity line of credit.
References
- Board of Governors of the Federal Reserve System. “Consumer Credit - G.19”.
- Metro Community Development. “What’s Best For Your Business? A Revolving or Non-Revolving Line of Credit?”
