A Revolving Credit is firm commitment by the bank to lend up to a certain amount .Revolving credit is similar to the line of credit except for the fact that the duration of the line of credit is longer ,generally up to five years. The duration of a commitment to lend against a revolving loan is therefore longer than a Line of Credit. This commitment is subject to a loan agreement containing mutually agreeable terms and conditions. Revolving credits are to be paid in full at maturity, and the revolving credit line can be re-used again for a fresh borrowing, if required. A fee generally is charged for a Revolving Credit commitment. This is a monthly charge from 0.25% to 0.50% per annum on the average daily-unused portion of the committed amount.
Revolving loans refer to the loans where the borrower can withdraw the money within his credit limit, repay some or all part of the outstanding amount and can borrow again over the tenure of the loan. Banks normally charge normal interest rate on the borrowed amount and a very nominal interest rate to the range of 0.5% to 1% (much lower than the interest rate on borrowed money) on the money unused. The money unused is calculated by subtracting money withdrawn from total credit limit.
Business houses, industries, retailers and different companies use this type of loan to meet their urgent cash requirement without any hassles.