Revolving Credit Facility
Revolving credit is like an overdraft secured over your property. It allows you to put your earnings into an account that you use to cover your expenses, with direct debits and automatic payments. Interest is calculated daily on the ever-changing daily balance and averaged out at the end of a monthly or fortnightly period. The loan repayment calculated for that period is charged and paid from your account.
You need to be very disciplined to keep within your loan limit. You should make sure your income exceeds your outgoings, to reduce the loan principal as quickly as possible.
For example, if you start with a loan balance and limit of $100,000 and then deposit your fortnightly income of $1000 into the account, the balance will be $99,000. The interest is now payable on a balance of $99,000. Over the next fortnight you spend $800 on living expenses, mortgage repayments, food, petrol etc. The balance is now $99,800.
Spending less than your income each fortnight will see the balance on your loan account lower more quickly than a standard loan account. You also end up paying the loan off faster and paying less interest over the term of the loan because you are constantly reducing the loan balance. Most lenders offer free transactions on one or more bank account if you have all your accounts with them, but this varies between lenders. Most lenders also offer a range of other discount packages. Most banks charge monthly flat fees of between $5 and $15 on revolving credit accounts but you may be able to elect that account as the one that is free of transaction charges.
Revolving credit may suit you if you're a commission agent or earn regular bonuses from work and want to use those surpluses to reduce your overall borrowings.
