Revolving Credit
Credit you can reuse as you repay, such as a credit card or overdraft line.
Paying only the minimum due on a card converts the balance to a revolving loan at 36% to 45% annualised, and the interest-free period on new spends is lost until the balance is cleared.
Why Revolving Credit matters when comparing products
Understanding revolving credit's characteristics is crucial when evaluating financial products in India because it highlights the cost implications of outstanding balances. Unlike one-time loans, its continuous availability means potential for ongoing debt if not managed. The high annualised interest rates and loss of interest-free periods make it a significantly more expensive financing option compared to other credit facilities when balances are carried over, influencing overall financial health and budgeting decisions.
Illustrative example
Suppose a credit card user in India has a ₹10,000 bill. If only the minimum due of ₹500 is paid, the remaining ₹9,500 becomes a revolving balance. At a typical annualised rate, say 40%, this means substantial interest accrues on ₹9,500 monthly. Additionally, any new purchases made will immediately incur interest, losing the benefit of a grace period until the entire ₹9,500 balance is fully settled.