How do drawdowns and repayments work on a revolving credit facility?

The mechanics are simple in outline and vary in the detail, and the detail is where the cost sits.

Drawing funds

Once the facility is in place you draw against it as you need to, up to the agreed limit. Most lenders now run this through an online portal, and funds usually reach your account the same day or the next working day.

You do not reapply and you do not explain each drawdown. That is the whole point of the product: the credit decision was made once, at the outset, and the limit sits there ready.

When interest starts

On the drawdown date, not the agreement date. Interest is charged on the balance you have actually drawn, calculated daily, and stops on the balance you have repaid. An undrawn limit accrues no interest.

Two costs do not follow that rule, and they catch people out:

• The arrangement fee is charged at setup on the whole limit, whether you draw anything or not.
• A non-utilisation fee, where a lender charges one, runs on the undrawn portion from the day the facility opens. It is also called a commitment fee or a standby fee.

So a facility you never touch is not free. See what a revolving credit facility costs for how the three components stack up.

Repayments: two structures, very different

This is the question worth asking before you sign, because the market contains both and they are not interchangeable.

Repay-as-you-like. The facility behaves much like an overdraft. There is no fixed repayment schedule for the principal, you clear the balance when cash allows, and you service the interest as it is charged. Maximum flexibility, and the discipline is entirely yours.

Drawdown-as-mini-term-loan. Each drawdown is repaid over a set number of months on a fixed schedule of capital and interest. More predictable, easier to budget, and less flexible, because you cannot simply sit on the balance when a month goes badly.

Lenders describe both as “revolving”, so the label tells you nothing. Ask directly: is there a required repayment schedule on each drawdown, or only interest to service?

When the limit is reinstated

The limit frees up as principal is repaid, not as interest is paid. Repay £20,000 of a £40,000 balance on a £150,000 limit and you have £130,000 available again.

The timing usually follows cleared funds rather than the day you send the payment, so allow for that if you are planning to redraw immediately. Facilities are also typically agreed for a term and reviewed at the end of it, so availability is not indefinite. The review is where the limit can be adjusted or the facility withdrawn.

What to check in the agreement

• Whether repayments are scheduled or discretionary.
• Whether there is a minimum drawdown size or a minimum utilisation requirement.
• How quickly repaid funds become available to redraw.
• Whether early repayment carries any charge.
• The facility term and what happens at review.

These are the clauses that decide whether the facility does what you actually need. We set them out alongside the rate when we compare lenders, because two facilities at the same headline rate can behave very differently once you are using them.