Revolver

What Is a Revolver?

A revolver refers to a borrower — either an individual or a company — who carries a balance from month to month, via a revolving credit line. Borrowers are only obligated to make minimum monthly payments, which go toward paying interest and reducing principal debt. Revolvers are used in finance by corporations to fund working capital needs, which are expenses for day-to-day operations such as payroll.

A revolver can sometimes be referred to as a revolver loan or revolving debt. However, revolver loans are usually fixed-rate credit products and are synonymous with business loans. A revolving credit line typically comes with a variable interest rate set by a bank, meaning it can fluctuate with market conditions.

Understanding Revolvers

The term revolver comes from revolving credit_,_ a category of financing or borrowing. A revolver lets an individual consumer or a business open a line of credit through a credit card or line of credit bank account, where the credit issuer offers a specified level of credit over time. Credit issuers tend to profit handsomely from revolvers because the open-ended credit line means companies use them frequently and keep them in use for extended periods of time.

Revolving Debt Versus Non-Revolving Debt

Revolving and non-revolving credit lines each have distinct advantages. Revolving financing allows the borrower to maintain an open credit line up to a specified limit. Non-revolving financing involves a loan whereby a one-time payout is issued to the borrower who must, in turn, make fixed payments according to a schedule. Revolver financing doesn't involve fixed payments or coupon payments. Instead, a minimum monthly payment is due based on the balance and interest rate according to the terms of the credit agreement.

$1.065 trillion

The total amount of outstanding revolving debt in the United States as of January 2020, according to a Federal Reserve report.

Source: Federal Reserve.

Non-revolving credit loans are often obtained both by businesses seeking capital with which to finance new projects, and by consumers looking to buy homes, cars, and other big-ticket items. While the underwriting approval standards are typically the same for both revolving and non-revolving credit, revolving credit lines usually involve a more simplified application process.

The emergence of fintech technologies has dramatically increased the availability of both revolving and non-revolving credit products, providing greater access to credit to underbanked populations. Consumers in the market for non-revolving loans may now choose from independent lenders such as Lending Club or Prosper.

Special Considerations: Revolving Credit Payments

Consumers and small businesses are drawn to revolving credit due to low introductory rate offers and reward benefits. Furthermore, when borrowers make a payment, it reduces their outstanding debt balance and makes more money available for future borrowing. 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.