What is a Revolver
A revolver is a borrower who carries a balance from month to month through a revolving credit line. With a revolving line of credit the borrower is only obligated to make monthly payments and therefore regularly holds a revolving credit balance on their account over time. A revolver is typically a major source of income for credit issuers since they have an open-ended credit line with steady monthly payments that include interest and principal.
BREAKING DOWN Revolver
Revolver comes from the term revolving credit which is a category of credit borrowing that allows a borrower to maintain an open credit line and make monthly payments. Borrowers have the option of seeking revolving and non-revolving credit for debt funding. The Federal Reserve reports on revolving and non-revolving credit balances monthly in their G.19 Consumer Credit report. As of December 2017 total revolving credit in the U.S. was $1.028 trillion.
Revolving and Non-Revolving Debt
A revolver has established credit terms that allow them to have an open line of credit through either a credit card or line of credit account. Revolving lines of credit can be issued to both consumers and businesses. It is a common type of funding that provides the borrower with a specified level of credit that they can draw from over time.
Revolving and non-revolving credit both have advantages. A revolving credit line allows the borrower to maintain an open credit line up to a specified limit. A non-revolving credit loan issues a one time payout loan balance to a borrower. Both types of loans require the borrower to make monthly payments that include principal and interest. Credit cards and credit line accounts are steady sources of income for lenders since they are open ended. Borrowers typically use these products for ongoing purchases and expenses. Revolving credit cards can also offer the advantage of reward incentives.
Non-revolving credit loans are often obtained by businesses seeking to make significant capital expenditures in new projects. Consumers will often look to mortgage loans or auto loans for non-revolving financing for specific purchases that they seek to repay over time. The necessary credit profile and underwriting approval standards are typically the same for both revolving and non-revolving credit. Revolving credit lines usually have a more simplified credit application while the process for non-revolving loans is typically more extensive.
The emergence of new fintech technologies has added to the available revolving and non-revolving credit products available for consumers and businesses. Consumers and businesses now have the option to choose from an independent lender such as Lending Club or Prosper when seeking a non-revolving loan. Many fintech lenders have also launched new types of revolving credit products that help provide greater access to credit for the underbanked population of an economy.
Paying Revolving Credit Payments
Consumers and small businesses are typically attracted to revolving credit due to low introductory rate offers and reward benefits. A revolving credit line allows a borrower to accumulate debt rather than taking on a full loan payout at once. For example a borrower approved for a $5,000 revolviing credit card could spend $1,000 and still have $4,000 available in revolving credit. The borrower’s monthly payments will include interest at the agreed upon rate as well as some portion of the principal. When the borrower makes a payment it reduces their outstanding debt balance and makes more money available for borrowing in the future. A borrower approved for a revolving credit line can keep the credit line open for an undefined period of time as long as they remain in good standing with the credit issuer.