Revolving Charge

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A type of credit arrangement that permits a buyer or a borrower to purchase merchandise or obtain loans on a continuing basis as long as the outstanding balance of the account does not exceed a certain limit.

Revolving charge agreements are usually made in connection with the use of a bank or a department store credit card. The term revolving charge is used interchangeably with the term revolving credit.

When all outstanding charges are paid before or on the payment due date, which is usually immediately before the date of the second billing, no interest charge is assessed against the account, although this policy might change in the future. For example, a customer charges $200 in merchandise during the first week in January and receives the statement of her outstanding balance on February 2. If the customer pays the $200 balance in full before March 2, the payment due date, no service charge is added to the account.

When the customer does not wish to pay the outstanding balance in full, she may make monthly installment payments, if the credit agreement so provides. The amount of each payment is determined according to a schedule based on a percentage of the outstanding balance of the account. A monthly interest charge is also added to the unpaid balance, usually at the rate of 11/2 percent per month.

Ordinarily each customer has his own line of credit, the maximum amount that the customer is permitted to charge. Once this limit is reached, no additional merchandise can be charged to that account until some payment has been made to reduce the outstanding debt.