What is a Revolving Line of Credit?

Written by Banks Editorial Team
2 min. read
Written by Banks Editorial Team
2 min. read

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A revolving line of credit is a loan product that lets you borrow up to the credit limit on an as-needed basis. Similar to a credit card, you can repay the amount you borrow, and once it’s reflected in your account, borrow the funds again up to the credit limit. 

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How Does a Revolving Line of Credit Work?

If you’re approved for a revolving line of credit, you can withdraw from it at any time up to the limit established by the lender. You’ll only pay interest on the amount you borrow, and you won’t have to reapply each time you want to make a withdrawal to access cash. 

Is a Revolving Line of Credit the Same as a Loan?

Not quite. When you take out a loan, the funds are dispersed in a lump sum. You’ll pay the loan over a set period in monthly installments that include both principal and interest. 

An Example of a Revolving Line of Credit

Here are some examples of revolving lines of credit: 

  • Credit card: These debt products allow you to make purchases up to your credit limit. The outstanding balance must be paid back monthly when the billing cycle ends to avoid interest charges
  • Home equity line of credit (HELOC): A HELOC lets you borrow against the equity in your home and uses your home as collateral. You can make withdrawals against this line during the draw period, which typically spans 10 years, and make interest-only payments on the amount you borrow. When it ends, you’ll be on the hook for monthly payments that include principal and interest over a 20- or 30-year repayment period. The interest rate on most home equity lines of credit is variable, so your monthly payment could change over the loan term. 
  • Personal line of credit: You’ll get approved for a set amount you can borrow from as often as needed. And you can pay down the balance and use the funds again until the draw period ends. Business lines of credit are also available for small business owners at some banks.

Unlock Your Home Equity

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Learn how Unlock can help you access cash using your home’s equity without taking extra debt or paying any monthly fees.
213 Reviews
Learn how Unlock can help you tap into your home equity without taking a loan or adding to your existing debt to fund personal projects.

When a Revolving Line of Credit May Be a Good Idea

A revolving line of credit could be suitable if: 

  • You want a pool of cash you can access for unexpected expenses at any time. 
  • You want to use a HELOC to convert the equity in your home to cash. 
  • You’re self-employed and want to smooth out income gaps. 
  • You want to earn travel perks and cashback with a rewards credit card. 

Alternatives to Revolving Lines of Credit

If you don’t want to take out a loan, review the alternatives you have instead of a revolving line of credit:

Consider Unlock Equity If You Own a Home

You can convert a portion of your equity into cash without taking on additional debt through a home equity agreement. Consider Unlock if you’re interested in exploring this option, as you can get up to $500,000 today in exchange for a percentage of your home’s future value.

You’ll need a 500 FICO score and a loan-to-value (LTV) of no more than 80 percent to qualify. There are no income requirements, and you won’t make monthly payments since it’s technically not a loan but a co-investment. And you’re free to use the funds however you want, whether it’s to pay off debt, make home improvements, retire comfortably, settle a divorce or diversify your investment portfolio. 

Even better, Unlock gives you 10 years to decide if you want to sell the home or stay put and buy out the agreement. You can get a free, no-obligation estimate on Unlock’s website to determine how much home equity you can tap into with Unlock. It’s fast, easy and won’t impact your credit score. 

Consider a Personal Loan If You Don’t Own a Home

A personal loan is an installment loan product that could work if you already have a plan for how you’ll use the funds or need to make a big-ticket purchase. You’ll get a predictable monthly payment and competitive interest rate (assuming you have good or excellent credit). You can also pay more than the minimum payment each month to pay the loan off early and save on interest if the lender doesn’t charge prepayment penalties. 

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