Definition
Revolving credit is a facility with a limit that you can draw on, repay and draw on again without reapplying, as long as you stay within the limit and the facility's terms. Business lines of credit, overdrafts and credit cards are common examples. Interest usually applies to the amount drawn, though fees can apply to the whole limit.
Revolving credit is designed for needs that come and go. Instead of borrowing a lump sum once, you get a limit that refills as you repay.
How it works
Suppose a business has a revolving limit. It draws part of it to pay suppliers, repays when customers settle invoices, then draws again next month. Interest is charged only while money is drawn, although facility or line fees may apply to the full limit.
Where it fits
Revolving credit suits recurring, self-correcting gaps: stock cycles, payroll before invoices are paid, BAS quarters. It is a poor fit for long-term purchases such as vehicles, which belong on equipment finance.
Using it well
Size the limit to your deepest regular gap, use it for short-term needs and bring the balance back towards zero regularly. Our guide to using a line of credit well has practical habits. To explore a revolving facility, make one enquiry.
Common questions
Is revolving credit cheaper than a term loan?
It can be for intermittent needs, because you only pay interest on what you draw. If the balance stays fully drawn, it can become more expensive than a term loan.
Can a revolving limit be reduced?
Yes. Many facilities are reviewed and the lender may reduce or cancel the limit if circumstances change.
Sources and further reading
Related terms