The operation of revolving credit
Permanent credit, revolving credit: we know several names, but the revolving credit has one principle: that of putting a sum of money at the disposal of a borrower. It is accessible at any time and is rebuilt at the option of refunds. This type of borrowing is strictly regulated by law, in order to guarantee better consumer protection. This does not prevent him from being regularly pointed out for his risk of over-indebtedness …
Revolving credit: a specific operation
Revolving credit is a consumer credit formula that differs from conventional loans. It is characterized by the provision of a reserve of money that the borrower uses according to his needs. The latter draws on this provision, in part from the available reserve. Unlike the credit allocated, the granting of the revolving loan is therefore not linked to a specific project or to a property to be financed. But its main feature lies in its available reserve, which is reconstituted at the option of refunds, within the limit of the maximum amount allowed. The permanent credit is available in banks and consumer credit organizations, but it is also offered as a financing solution by retail and mail order retailers. Reason why he is considered by his detractors as an inducement to indebtedness.
Revolving credit: control mechanisms
If for 12 consecutive months the borrower does not use the available reserve, the revolving credit agreement is suspended. It will be terminated automatically after one year of further inactivity. The reactivation can only take place at the express request of the borrower.
Finally, the lending organization sends each month to the borrower a summary of all transactions. This document contains information on the general state of credit.
Revolving credit: what is the actual term?
The revolving credit is contracted for a period of one year, renewable. Prior to each renewal of the revolving loan agreement, the lender consults the National Individual Credit Repayment Incident File. He also ensures, every 3 months, the solvency of the borrower.
In addition, 3 months before the anniversary date of the contract, the lending organization informs the borrower of the terms of renewal of the contract and the terms of repayment of the outstanding capital. The borrower then has 20 days to express his disagreement with the changes proposed by the lender. He must return the refusal slip attached to the mail. In this case, he must repay the sums used, according to the terms of the contract. Finally, the revolving credit can, at each anniversary date, be transformed into conventional consumer credit.
Revolving credit: a refund to the card
The repayment of the revolving credit begins as soon as the borrower draws on the reserve of available money. The repayment of the sums borrowed is made in accordance with the terms of the revolving loan agreement and continues until the reserve is fully reconstituted. Each maturity must include a minimum repayment of the borrowed capital. The borrower only pays interest on the fraction of the capital used, and not on the available credit.
According to the legislation in force, the maximum repayment period of the permanent loan is fixed at:
– 36 months for a credit less than or equal to € 3,000;
– 60 months for a credit over € 3,000.
The revolving credit has the distinction of being relatively free to use. The borrower may at any time request the reduction of the credit reserve, the suspension of his right to use it or the termination of his loan agreement. In this case, he will have to repay the amount of the reserve used, according to the terms of the loan agreement.
In addition, the early repayment of this type of loan is even more recommended that it generates no penalty or additional costs. If the borrower encounters financial difficulties, he has the possibility to benefit from a deferral of monthly payments twice a year. This measure increases the amount of interest paid by the borrower.
Revolving credit: a framed credit card
To use the revolving credit and tap into the cash reserve, the borrower can request a bank check or transfer to his account. It can also use a specific card associated with the permanent credit. A credit or loyalty card, the use of which is strictly governed by the legislation in force:
– First, if such a means of payment is given to the subscriber of the revolving credit, he must indicate on the back and in legible characters, the mention credit card.
– Then, the law prohibits the loyalty cards which can only work in payment on credit. Not only these means of payment must imperatively have both options: on credit and cash. But in addition, the cash payment function must be activated by default.
Finally, the commercial advantages offered by a loyalty card can not in any case be subordinated to the use of the permanent credit.