Revolving Credit

Revolving Credit is a type of credit facility where the borrower does not have to repay the entire outstanding balance in one shot.

Instead, they can pay any amount between the minimum due and the full outstanding balance, with the remaining balance carrying forward to the next billing cycle. Credit cards are the most common example of revolving credit in India. What is Revolving Credit? When you pay only a portion of your credit card bill — say ₹3,000 against a ₹20,000 total due — you are entering the revolving credit mode. The remaining ₹17,000 is carried forward, and the bank starts charging interest on it. This interest is calculated daily on the outstanding balance and appears on your next bill. The "revolving" aspect comes from the flexibility of the credit line. As you repay, your Available Credit is restored. As you make new purchases, it decreases again. This cycle can continue indefinitely as long as you make at least the minimum payment by the due date. However, the interest costs compound quickly, making revolving credit one of the most expensive forms of borrowing. Interest rates on revolving credit are typically quoted as annual percentage rates (APR). For credit cards in India, APRs range from 18% to 42% per annum depending on the card type, the cardholder's credit profile, and whether it is a platinum, gold, or classic card. HDFC Bank Regalia Gold may charge 1.5% per month (18% APR), while some lifestyle cards can charge 3.5% per month (42% APR). One key feature of revolving credit is that interest-free period (grace period) is lost as soon as you carry forward a balance. If you pay your full bill on time for three months and then decide to revolve in the fourth month, you lose the interest-free period on new purchases from day one. Interest will be charged on the carried-forward balance and on all new purchases from their transaction dates. Revolving credit can be useful for short-term cash flow management if you are confident you can repay the full amount within one or two billing cycles. However, making revolving credit a habit leads to a debt spiral where you pay mostly interest and very little principal. Financial advisors recommend treating the credit card as a 45-day loan at zero interest, not as a long-term borrowing tool.