Revolving Loan Facility

In today’s fast-paced financial world, a revolving loan facility can offer businesses and individuals a flexible financing solution. Unlike traditional loans, a revolving loan gives borrowers access to a set amount of credit that can be used, repaid, and reused over time. This type of loan is particularly beneficial for managing cash flow, emergencies, or ongoing business expenses. In this article, we will explore what a revolving loan facility is, how it works, and its advantages for both businesses and individuals. We will also explore the advantages of a personal loan.

Revolving loan facility

A revolving loan facility is a credit line extended by a lender to a borrower that allows repeated withdrawals and repayments within a predefined limit. Unlike a traditional loan with fixed repayment terms, a revolving loan gives the borrower the flexibility to draw funds as needed and repay them when convenient, as long as the limit is not exceeded. For businesses, this can be an invaluable tool for managing fluctuating expenses, while individuals may also benefit from a revolving loan facility for personal financial needs.

What is a revolving loan facility?

A revolving loan facility is essentially a flexible credit option where a borrower can withdraw funds up to a pre-approved limit. Once the loan amount is repaid, the borrower can withdraw again, making it a continuous source of funds. The loan is usually unsecured, meaning no collateral is required, and the borrower only pays interest on the amount they use. This type of loan is common in business operations but can also be offered to individuals for personal loans or credit card debt.

How a revolving loan facility works

The borrower is approved for a specific credit limit based on their financial profile. They can withdraw funds from this limit as and when needed. Once the amount is repaid, it can be withdrawn again without the need for a new loan application. For example, if a business has a revolving loan facility of Rs. 10 lakh and withdraws Rs. 5 lakh, they can repay that Rs. 5 lakh and access it again when required. Interest is typically only charged on the amount borrowed, and borrowers can choose to make payments that suit their cash flow.

Are all revolving loan facilities for businesses?

While revolving loan facilities are popular in the business world, they are also available to individuals. For example, credit cards are a type of revolving loan facility for personal use. Similarly, individuals can apply for revolving personal loans, which allow them to borrow, repay, and re-borrow up to a certain limit without reapplying. These personal loan facilities are ideal for managing unexpected expenses, such as medical bills or urgent home repairs, and offer a flexible alternative to fixed-term personal loans.

Using the Flexi variants of the Bajaj Finserv Personal Loan

Individuals looking for a personal loan can take advantage of the Flexi variants offered by Bajaj Finance. You get a pre-approved loan limit based on your credit profile and can use it to meet your funding needs on the go. You can withdraw funds from this limit whenever you need finance and can prepay them whenever you have surplus money in hand. You pay interest only on what you withdraw from your loan limit and not on the entire sanction. This way, you can address your ever-evolving needs on a case-to-case basis. A unique Flexi Loan feature is that you can choose to pay just the interest component of your EMI for the initial part of the tenure.

How do businesses use a revolving loan facility?

Businesses often rely on a revolving loan facility to cover operational expenses, manage working capital, or finance unexpected costs. For example, a company may need to purchase inventory, pay wages, or deal with seasonal cash flow issues. With a revolving loan, they can withdraw money whenever these needs arise, without having to apply for a new loan each time. It is particularly helpful for businesses that experience fluctuations in their income or require quick access to capital for growth opportunities.

Example of a revolving loan facility

Let us say a small business has a Rs. 20 lakh revolving loan facility. They withdraw Rs. 7 lakh to purchase new equipment. As they make sales and revenue comes in, they repay the Rs. 7 lakh over a few months. Later, they face an unexpected expense and withdraw Rs. 5 lakh from the remaining Rs. 13 lakh available in the loan facility. They can continue to repay and withdraw as needed, making the revolving loan a continuous source of credit for the business.

How long do you have to repay a revolving loan facility?

The repayment terms for a revolving loan facility are usually flexible, allowing borrowers to repay the loan as their finances permit. However, there may be a deadline by which the entire loan amount must be repaid, typically referred to as the loan's maturity date. Borrowers usually have the option to make minimum payments, but they should be mindful of any interest charges that accumulate over time. The ability to repay and reuse the funds within the loan's limit makes the facility highly adaptable to changing financial circumstances.

Do you pay interest on a revolving loan facility?

Yes, interest is charged on the amount you borrow from a revolving loan facility. However, unlike a standard loan where interest is charged on the total loan amount, you only pay interest on the portion you have withdrawn. For example, if you have a revolving loan facility of Rs. 15 lakh and only withdraw Rs. 5 lakh, interest will only be charged on that Rs. 5 lakh. Interest rates may vary depending on the lender and the borrower’s creditworthiness. It is essential to understand the terms and fees associated with the revolving loan to avoid any unexpected charges.

Conclusion

A revolving loan facility offers unmatched flexibility for both businesses and individuals looking to manage their finances effectively. It allows access to funds as needed, repayment at your convenience, and the ability to borrow again without reapplying for a loan. Whether you are a business looking to cover fluctuating expenses or an individual in need of emergency funds, a revolving loan facility can provide the financial cushion you need. Understanding the terms, interest rates, and repayment options can help you make the most of this useful credit tool. Consider the Flexi variants of the Bajaj Finserv Personal Loan depending on your needs.

*Terms and conditions apply.