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Ok. Got itIs a revolving loan or personal loan best for you? Here’s what you need to know so you can make an informed decision.
How do you know whether a revolving loan is the right option for you?
Choosing the right credit solution depends on what you need from the credit facility. One of the options available is a revolving loan, which provides you with flexibility but also needs careful management. Here’s what you need to know about these loans to help you make an informed decision.
What is a revolving loan?
A revolving loan is a type of credit facility that offers you the flexibility to:
The loan term is open-ended and the interest payable on the loan facility will be determined by your credit score and affordability (and can change from time to time).
Depending on the specific product, you can generally choose between variable repayments (pay what you use) or fixed repayments that stay the same.
How does it differ from other credit solutions?
A revolving loan is very different from a personal loan. A personal loan involves borrowing a once-off amount that you can’t loan against again. You repay the amount borrowed back via fixed monthly repayments over an agreed term at a set interest rate determined by your credit score.
A revolving loan shares more similarities with a credit card or an overdraft on your bank account, in that you can use it multiple times if you keep up with payments.
This means that if you want continuous access to the money you borrowed, a revolving loan may be better suited to your needs. If you only need a once-off amount for a specific purpose, a personal loan may be the best option for you.
How does it work?
A revolving loan offers ongoing credit as long as you keep up with the minimum payments. The more you pay back on a revolving loan, the more you have available to use again. In that sense it works similar to a savings account – the more you take out, the less you will have to spend, but the more you put in, the more you’ll have access to if, for example, you have an emergency.
Pros and cons of revolving loans
Pros
Cons
Speak to a professional financial advisor about your credit needs.
Most of us need to make use of a credit solution in some form to meet our needs and goals. Depending on your requirements and circumstances, and how you generally manage your money, some solutions will be more suitable for you than others. If you think a revolving loan may be appropriate for your needs, we recommend discussing this with an accredited financial advisor before you sign on the dotted line.
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This information is for general information purposes only and is not legal advice.