REVOLVING LOAN Meaning and
Definition
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A revolving loan refers to a type of credit arrangement that provides borrowers with the flexibility to borrow, repay, and borrow again. It is typically provided by financial institutions or banks to individuals or businesses to meet short-term funding needs. The key feature of a revolving loan is its renewable nature, wherein the borrower can repeatedly access funds up to a predetermined credit limit without the need of reapplying for a new loan each time.
In a revolving loan, the borrower can withdraw funds as needed, repay the borrowed amount, and then use the available credit again. This revolving nature differentiates it from traditional loans where funds are received all at once, with fixed monthly installments until the total loan amount is repaid. Revolving loans are more flexible, allowing borrowers to address ongoing financial requirements without the hassle of reapplying for loans.
Interest is charged on the outstanding balance, typically at a variable rate based on a benchmark such as the prime rate, and the amount of interest paid is determined by the average daily balance for the billing cycle. The interest charges are added to the outstanding balance, meaning that payments made are applied to both interest and principal, reducing the overall balance owed.
Revolving loans are commonly used by businesses for working capital needs, such as purchasing inventory, managing cash flow fluctuations, or financing receivables. Individuals may also avail of revolving loans, often in the form of credit cards or personal lines of credit, to cover various expenses, especially during emergencies or to make purchases that can be paid off over time.
Common Misspellings for REVOLVING LOAN
- Revolving Loan:
- Revolvin Loan
- Revovling Loan
- Revoving Loan
- Revolvan Loan
- Revolveing Loan
- Revolviling Loan
- Revoluing Loan
- Revoloving Loan
Etymology of REVOLVING LOAN
The word "revolving loan" does not have a specific etymology as it is a combination of two separate words.
The term "revolving" comes from the verb "revolve", which originates from the Latin word "revolvere", meaning "to roll back". In this context, "revolving" refers to the loan's characteristic of being renewable and re-usable. It suggests that the borrower can continuously borrow from the loan as they pay it back, similar to a revolving door that constantly moves in a circular motion.
The word "loan" stems from the Old Norse word "lán", which means "a lending". It later evolved into the Middle English word "lone", which eventually became "loan". It signifies the act of lending money or other assets to someone temporarily, with the expectation of repayment.
