Did you know that adding a revolving credit option to your lending company brings multiple benefits for you and your customers? Perhaps you might have heard of this type of financing before or may have even considered offering this option. To decide whether or not this loan type is right for your business and your customers it is essential to understand what it is, how it works, and how adding this loan type to your business can positively impact your company.
What is Revolving Credit?
Before diving into the specifics, let us introduce revolving credit: The term revolving credit refers to an open-ended account of the credit, which is available to be used and repaid repeatedly as long as the account remains open. The loan amount is determined by the borrower, and it is paid back with fees and interests. Revolving credit loans are often used as a form of credit card or as an online payment method through which a borrower can take out a small amount of money based on their creditworthiness. That can be an attractive option for lending companies because it offers flexibility and convenience to customers. According to the Eurofinas Annual Survey, "personal loans and revolving credit each represented over a quarter (at 29%) of new credit granted in 2021. Personal loans grew by 17.0% while revolving credit exhibited an increase of 10.7%."
How does it Benefits Lending Companies?
Offering revolving credit as a lender could increase your average loan amount and attract more customers. Revolving credit may be used more frequently by customers who qualify for it for everyday purchases like groceries or restaurants. As a result, they might open up a revolving credit line of more than $100. Providing revolving credit could also increase your average loan amount since it's a small line of credit that can be used for small purchases. In other words, your customers will be less likely to borrow thousands of dollars and will be less likely to miss payments. If a revolving credit line is missing, the consequences aren't usually the same as if a mortgage or bigger loan payments are missing.
Benefits for Customers
A credit line is an attractive option for customers because sometimes they can access it without verifying their credit score and history. Here are some other relevant advantages of Revolving Credit for customers:
- Option to use the credit to cover unexpected expenses, travel plans, purchase technology, or rent a car/hotel when needed.
- A higher cash flow allows people to balance their finances.
- Lower monthly installments and the possibility to make extraordinary payments to pay off your debt.
- Revolving credit is a good option for people that are thinking about growing their businesses. It helps by improving cash flow and building business credit while offering great flexibility.
Now that you know the benefits of this type of consumer credit, you are probably wondering how to integrate this option into your existing offerings. The good news is that you don’t need to spend months developing everything from scratch. With our no-code platform, can be integrated seamlessly and in a shorter period because our solution is ready for use according to specific business needs. You have to configure a few things on your end, to make it easy for your customers to apply for, manage, and access their credit lines.
How Does Revolving Credit Work with Our Platform?
Adding revolving credit as an option for your users is simple with our platform. Rather than worrying about back-end development, we will handle that for you. With our back-office solution Banking you can build a complete and seamless experience for your customers and build your risk models and scoring calculations with our Decision Engine application:
- For a new product configuration like a revolving credit, you can have a flexible setup according to the required conditions.
- Set repayments frequency.
- Interest rates can be fixed or customized with interest constraints.
- Customize interest calculation, and handle partial terms, which sets how interest gets calculated.
- Configure the withdrawal settings, the termination settings, and the full premature repayment, refinance and reschedule settings.
Once you have the revolving credit available on your platform, you will need to consider how to promote that option to get customers to take advantage of it. Find here what to offer to encourage people to apply for it:
- Lower fees: Lower cost for a physical card or decrease the interest for a determined time.
- Easy to access: Avoid long forms or confusing conditions for customers to apply.
- Insurance: Provide insurance for durable goods when paying using revolving credit money.
- Partnerships: Offer special prices, rewards, or discounts on purchases made with partners.
Risks Associated with Revolving Credit
There are always risks associated with revolving credit, just as with any loan product. The main risk of offering revolving credit as a loan type is that some customers may not repay their debt. Therefore, thoroughly vet your customers to ensure they have a high chance of paying back their loans. Bad debts are another risk associated with revolving credit. That refers to non-performing loans, including those where the borrower pays back less than the total amount. Bad debt is usual with any loan and will generally vary based on the loan you provide and the customers you serve.
Increase turnover and customer satisfaction by adding revolving credit to your services via Fintech Market. Visit our products page to know more about our solution for lenders and other financial service providers: https://fintech-market.com/products