There are many types of consumer loans in the United States. One of the most common
is the credit card. Credit card payments are calculated monthly based on outstanding
balances. This type of credit is called revolving credit. Installment loans, on
the other hand, are pre-calculated--the standard payment never changes. There are,
however, some differences between revolving credit on credit cards and revolving
credit on other loans.
Identification
A revolving line of credit can adjust dramatically. For example, if a credit card
has a $5,000 credit limit but only a $100 balance, the payment required will be
quite low. However, if that card is maxed out, the payment will likely be quite
high. Credit card companies adjust payments each month by calculating the amount
of interest based on the outstanding balance.
Credit Card Rates
Credit card rates are often variable or adjustable. In response to the 2008 credit
crisis, credit card lenders cut back on offering fixed-rate credit cards in an attempt
to remain profitable. Rates change most often when borrowers fail to make payments
on time. The rates sometimes can be changed arbitrarily. Usury laws differ from
state to state, but some states (like Delaware) have extremely loose usury regulation.
Many credit card companies set up their headquarters in these states to take advantage
of lax regulation.
Revolving Credit Rates
Not just credit cards are revolving. Personal lines of credit and even mortgages
can be revolving accounts, too. However, these programs are often more beneficial
to the customer. Revolving mortgages, for example, usually have fixed rates. Customers
still only need to make minimum payments, but need not worry about their rates skyrocketing.