Revolving Credit

Definition

Revolving credit is a loan arrangement where the borrower can borrow and repay funds at any time within a pre-approved credit limit. The borrower only pays interest on the amount used and can borrow again after repaying part or all of the loan. It is commonly used in credit cards and business loans.

Origin

The concept of revolving credit originated in the early 20th century and developed with the spread of consumer credit. The emergence of credit cards was a significant milestone in the widespread application of revolving credit, especially after the 1950s, when credit cards became an essential tool for individuals and businesses to manage cash flow.

Categories and Features

Revolving credit is mainly divided into personal revolving credit and business revolving credit. Personal revolving credit typically appears in the form of credit cards, allowing consumers to spend flexibly within their credit limit. Business revolving credit provides companies with the convenience of cash flow management, helping them meet short-term funding needs. Its features include high flexibility, interest calculated on the amount used, and no fixed repayment schedule.

Case Studies

Case Study 1: Visa Credit Cards. Visa, as one of the largest credit card companies globally, offers credit card products that are typical examples of personal revolving credit. Cardholders can spend within their credit limit and choose repayment amounts based on their financial situation.
Case Study 2: American Express Business Cards. American Express provides business card products that allow companies to make purchases and payments within a credit limit, helping them manage cash flow and expenses.

Common Issues

Common issues include: How to avoid over-borrowing? Borrowers should use revolving credit reasonably based on their repayment ability to avoid financial stress caused by excessive borrowing. Another issue is interest rate fluctuations, where borrowers need to pay attention to rate changes to avoid increasing their repayment burden.