What is a Revolving Loan

If you’re looking for a flexible loan that allows you to borrow and repay the money on an ongoing basis, a revolving loan might be the solution for you. A revolving loan is a type of credit facility that allows you to borrow and repay money as needed, up to a predetermined credit limit. In this article, we’ll explore the ins and outs of revolving loans and how they work for South Africans.

What is a revolving loan?

A revolving loan is a credit facility that allows you to borrow and repay the money on an ongoing basis, up to a predetermined credit limit. Unlike traditional loans, which have a fixed repayment term, a revolving loan allows you to borrow and repay money as needed, as long as you stay within your credit limit.

With a revolving loan, you’ll be charged interest on the amount you borrow, but you’ll only pay interest on the outstanding balance. This means that if you repay some or all of the loan, you’ll only be charged interest on the remaining balance. This makes a revolving loan a flexible and cost-effective way to manage your finances.

How do revolving loans work?

Revolving loans work by providing you with a credit facility that you can use as needed. When you apply for a revolving loan, the lender will assess your creditworthiness and determine your credit limit. Your credit limit is the maximum amount of money you can borrow on a revolving loan.

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Once you have been approved for a revolving loan, you can borrow and repay money as needed, up to your credit limit. For example, if your credit limit is R50,000, you can borrow up to R50,000 at any time. If you borrow R10,000, you’ll only be charged interest on the outstanding balance of R10,000.

As you repay the loan, your available credit will increase, up to your credit limit. For example, if you repay R5,000, your available credit will increase to R45,000. You can then borrow up to R45,000, as long as you stay within your credit limit.

Advantages of revolving loans

There are several advantages to using a revolving loan:

  1. Flexibility: Revolving loans are a flexible way to manage your finances, as you can borrow and repay money as needed, up to your credit limit.
  2. Cost-effective: As you only pay interest on the outstanding balance, revolving loans can be a cost-effective way to manage your finances.
  3. Easy access to credit: Once you’ve been approved for a revolving loan, you’ll have easy access to credit whenever you need it.
  4. Improves credit score: Regular and timely repayments on a revolving loan can improve your credit score, making it easier to access credit in the future.

Disadvantages of revolving loans

While revolving loans can be a useful tool for managing your finances, there are some disadvantages to consider:

  1. High-interest rates: Revolving loans may have higher interest rates than traditional loans, which can increase the overall cost of borrowing.
  2. The temptation to overspend: The flexibility of revolving loans can make it tempting to overspend, which can lead to debt problems.
  3. Limited credit limit: Your credit limit on a revolving loan may be limited, which can restrict your ability to borrow larger sums of money.
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Things to consider before applying for a revolving loan

Before you apply for a revolving loan, there are a few things you should consider:

  1. Interest rates: Revolving loans may have higher interest rates than traditional loans, so make sure you understand the interest rate and the overall cost of borrowing.
  2. Credit limit: Your credit limit on a revolving loan may be limited, so make sure you understand your credit limit and whether it will be sufficient for your needs.
  3. Repayment terms: While revolving loans allow you to borrow and repay money as needed, you’ll still need to make regular repayments on the outstanding balance. Make sure you understand the repayment terms and whether you can afford the repayments.
  4. Fees and charges: Revolving loans may have additional fees and charges, such as annual fees and transaction fees. Make sure you understand the fees and charges associated with the loan.

How to apply for a revolving loan

To apply for a revolving loan, you’ll need to follow these steps:

  1. Check your credit score: Before you apply for a revolving loan, check your credit score to make sure you’re eligible. You can check your credit score for free with credit bureaus such as TransUnion, Experian, or Compuscan.
  2. Shop around: Compare different revolving loan options from different lenders to find the best deal. Look for lenders that offer low-interest rates and minimal fees.
  3. Apply for the loan: Once you’ve found a suitable lender, fill out the application form and provide the necessary documentation, including proof of income and identity.
  4. Wait for approval: The lender will assess your application and decide whether to approve or reject it. If approved, you’ll receive the loan funds, and you can use them to borrow and repay money as needed.
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Conclusion

Revolving loans are a flexible and cost-effective way to manage your finances. With a revolving loan, you can borrow and repay money as needed, up to a predetermined credit limit. While revolving loans can be a useful tool for managing your finances, it’s important to consider the advantages and disadvantages before deciding if they’re the right solution for you. Make sure you understand the interest rates, credit limit, repayment terms, and fees and charges associated with the loan. Compare different lenders to find the best deal and apply for the loan once you’ve found a suitable lender.

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