Disadvantages of a Revolving Credit Line

A revolving credit line allows you to purchase the things you need now, even if you do not necessarily have the cash on hand. Revolving credit lines are open ended, which means you can spend up to the limit the credit company allows as long as you make your payments. There is no set date that you must have the entire line paid back, as with a closed ended loan. While business credit lines can have some great advantages, they also have many drawbacks. Here are a few things you should consider if you are considering getting a revolving line of credit for your business.

Temptation

One of the biggest disadvantages to a revolving credit line is that many people are tempted to spend more than they can afford. A $25,000 limit on a small business credit card can go a long way. It can help you purchase new equipment, supplies and other necessary items for a business. But, the temptation to purchase more than you need is there. The minimum payments on a revolving credit line can look great at first, but you in the end; you will end up spending a lot more in interest over the long run.

Terms

When you sign a loan contract you are agreeing to the terms set forth by the bank. The terms are fixed and will not change. Credit cards do not work the same way. The terms of use, including the interest rate, can change at any point, and with very little notice. You are not required to accept the new terms, but as long as you continue to use the card you are legally bound by any new terms, no matter how undesirable they may be. Your only option to not accept new terms issued through a credit card company is to cancel the card and pay your balance in full.

Interest Rates

While having a balance that you can revolve and pay small minimum payments may seem like a great idea, the interest rates that come alongside that convenience may not be worth it. Interest rates on a credit card will traditionally start out low for a certain period of time. This is designed to allow you to spend.

Once the introductory rates expire, your interest will be higher than it would have been on a small business loan. Also, if you miss one payment, the interest rate will be adjusted and can skyrocket out of control in no time.

Carefully consider high credit card debt and all your options before you decide to spend a large amount on any credit card or revolving balance credit line.