Revolving credit: Information

Revolving credits are to loans what telephones are to communication: their use is simple, the installation is free , but the cost can quickly become prohibitive if we are not careful. Moreover, these products have often been denounced by consumer associations in past years. This is undoubtedly why a package of laws has come to correct the situation in order to better protect consumers from the abuses and traps of revolving credits.

Definition and operation of revolving credit

A revolving credit is a sum of money left at the disposal of users , according to their needs; hard knocks or crushes. This amount of available money is subject to a rate, which can be revised in the vast majority of cases, if not always. The peculiarity of a revolving credit is that as and when the amount used is repaid, the reserve becomes 1 econstitutes, allowing users to have recourse to it again if necessary.

Thus, this envelope can be used endlessly. But beware, each use, total or partial, generates interest and insurance costs . Since the Lagarde laws, revolving credit has been better regulated. If, before 2012, no deadline for settling the deadlines was set, this is no longer the case. From now on, any amount used must be repaid within a maximum period of three years, if the amount in question is less than $ 3,000, and within five years, if it is above this barrier of $ 3,000. This avoids the main trap of cash reserves.

Indeed, the method of calculating interest on a revolving credit differs from that concerning a depreciable loan . Here, the amount of interest is almost fixed, regardless of the monthly payment. Whether you pay off $ 21 or $ 250 every month, your interest amount will hardly change. So, if you have a tight monthly budget, you may end up opting for low monthly payments, which will significantly increase the cost of your credit.

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The advantages of revolving credit

Despite everything, revolving credit retains some significant advantages . Compared to a repayable loan, the reconstituted envelope is still usable, after repayment . While when you have finished repaying a classic loan, and you need cash, you need to take out a new loan ... Or dig your overdraft.

Revolving credit therefore allows you to draw on this cash as much as you want, as long as you repay the amounts used, of course.

The other big advantage of revolving credit is the availability of money . Of course, that money can be expensive. But he's also likely to be of great service to you. Imagine that you break down in your vehicle, that your fridge fails, or that you have to call a doctor who is not reimbursed by social security for several sessions. All this while you have no cash. Revolving credit can save you from this kind of situation. In case of unforeseen events, hard knocks, there is always the possibility of drawing from the reserve available .

In addition, the current systems, backing the credit card to the revolving credit, allow a very high reactivity . As long as your line of credit is open, you can use it whenever you want. And, as long as you don't use it, you are not charged anything.

Finally, and even if we have seen that these small installments tend to be expensive in the end, this form of credit allows you to set the amount of your monthly payments yourself, allowing you to control your daily budget. In addition, if you have the option of making a partial repayment in addition to your monthly payments, you can do it whenever you want, free of charge.

Revolving credit, above all, is flexibility in its daily management.

Revolving credit and supporting documents

Obtaining a line of credit without having to provide any proof is only possible in one case; the one where you apply for revolving credit from your banking institution. And even. Although you have known you for a long time, some establishments will still ask you to justify your income by presenting your payslips or other tax notices.

However, it happens that the establishment of such a line of credit can be done very quickly , in an emergency and for generally small amounts. Apart from that, you must remember that a loan is still a loan, and that it is therefore subject to grant conditions, especially if the approach you take with the establishment concerned is the first contact you make. with him.

For the rest, the use of the money reserve is not subject to any proof. So you do what you want with the money you use. Have you fallen for a romantic trip to Florence or the Norwegian Fjords? Your revolving credit is there. Want to jump on the opportunity to buy a new, high-quality amp and speakers at half the price? Your revolving credit is still there . You can be extremely responsive, but you don't have to tell your banker what you're doing with that money.

The steps to obtain a revolving credit quickly

As we mentioned above, a revolving credit is a loan. It is therefore subject to award criteria. However, if you have been a customer of your banking institution for a long time, the subscription will not take you long . In some banks, you just need to apply online. You will have two or three fields to fill in, in a form, and your advisor will be able to give you very quickly the amount for which you can claim .

In many cases even, it is your advisor who offers you the revolving credit even though you had not thought of it.

If you have to subscribe to an organization other than your Bank, you will have to go through all the classic stages of applying for a loan; online simulation , filling in the form, editing the contract, sending the signed contract by post, waiting for the organization's response, legal deadlines, and finally, in the event of an agreement, provision of funds.

From then on, you can choose to have these funds transferred to your bank account, or to use it from the interface of the chosen organization. Also note that you have a withdrawal period, after signing the contract, of 14 days. The latter has been increased by 7 days since summer 2011.

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The different financial organizations

Among the institutions likely to offer a revolving credit contract, there are two categories; banking institutions and finance companies. In practice, many finance companies are owned by banks. This is the case with Paydaynow, owned by Crédit Agricole or Cetelem, which belongs to BNP Paribas. But other companies are more or less independent , such as Cofinoga.

In principle, all revolving credits are equivalent. The notable differences lie on two points; the maximum amount of the money reserve and the association, or not, of a blue card with revolving credit . While banking institutions are able to offer their customers revolving credits of up to $ 21,500, finance companies are generally limited to $ 6,000.

Regarding the associated credit cards, it is still the banking institutions that offer this option systematically . Finance companies, on the other hand, and unless they are part of a banking group, do not always have the ability to distribute credit cards. Thus, Cofinoga, not affiliated with a Bank, only offers dry revolving credit. On the other hand, Paydaynow is aligned with the services of banks such as the LCL, the Bank Postale or the Bank Popular.

Throughout these pages, we focus on the services of these different organizations. You will therefore find our opinion on Crédit Agricole's Asset Libre, Bank Popular's Bridgepayday, the Izicarte of the Savings Bank, the Agile revolving credit of Paydaynow, as well as the money reserves offered by Cofinoga, the Bank Postale and the LCL.

Note that in the batch, Cofinoga is the only organization which is not a Bank and which does not belong to a Bank either. Paydaynow and LCL are 100% owned by Crédit Agricole, Bank Popular and Caisse d'Epargne are two separate entities of the same banking group, BPCE, and Bank Postale is independent.

The different revolving credit cards

We've barely touched on the subject here, but the big advantage of revolving credits over the past few years is that they are mostly credit card backed. These credit cards are the most classic blue cards. They allow payment and withdrawal, direct or deferred debit, whether stamped Visa or Mastercard.

The novelty is that now, it is possible to link them, in addition to their basic functions, to a revolving credit. Thus, when choosing which account to withdraw cash, it is possible to choose the revolving credit account. Ditto for payments. With a caveat, however, internet payments are excluded from the choice of "cash" or "credit". But all payment terminals at merchants in United States accept this choice. 5

Certainly, some might argue that this association can easily be the source of errors. On some payment terminals, the "cash" and "credit" keys are sometimes erased, and the choice then becomes a lottery. But a simple careless mistake can also lead to paying interest on a purchase that you thought you had bought in cash. However, without specifying the card holder, payment will always be made in cash .

It is true that this way of operating can be perceived by some as a push-to-consumer. Facilitating consumption in this way generates costs, interest and, ultimately, debt. But used with discernment, revolving credit turns out to be an extremely practical tool, especially in its version backed by the credit card. It allows great responsiveness and a little more serenity in the daily management of the household budget.

Among the establishments we have examined here, only Cofinoga does not offer a combination between revolving credit and the credit card. For all others, including Paydaynow, it is possible to subscribe to the “on credit” option.

How to terminate a revolving credit?

In principle, a revolving credit can be canceled at any time . However, there are generally two special cases in which termination takes place. But as a preamble to any termination, it is necessary to have repaid all the sums borrowed . If this is not the case, the institution issuing the contract can request immediate reimbursement of the money used, in addition to penalties, if applicable.

The best period to terminate your revolving credit contract remains the period preceding the tacit annual renewal . Indeed, since the implementation of the Lagarde laws, it is expected that the contract will be reviewed each year, and tacitly renewed. After three years, the complete file must be reconstituted. Therefore, if you no longer want your reserve of money, and once you have received the information concerning the future renewal of the contract (in the three months preceding the anniversary date), you have up to 20 days before the said anniversary date to terminate your contract.

Another case of termination is that of withdrawal. The law now provides 14 days to retract after signing a contract. As long as you are still within these 14 days, you can cancel free of charge. Otherwise, and from the moment the money reserve is full, that is, you owe nothing, you can cancel at any time .

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Revolving credit simulation

What must be understood in a revolving credit is the method of calculating the maturities. Although they are not easy to calculate, because of the multiple possibilities available to the subscriber as to the use of the money, you can retain a principle; the lower the monthly payment, the more your cash reserve will cost you .

In a depreciable loan, the interest part of the monthly payment decreases as the part of capital due increases. This is because interest is calculated on the remaining principal due for each due date. In a revolving credit, and to simplify the understanding of the thing, we can say that the interest part is fixed, regardless of the amount of principal repaid.

In fact, if the interest portion to be reimbursed is fixed, depending on the rate and the expected duration of the reimbursement, it will not change, regardless of the amount of the due date that you pay. On a revolving credit, you have the possibility to choose the amount of your monthly payments , from the moment when the calculation carried out fits well within the framework of the law in terms of duration. Then, and even if you increase your maturity, the interest portion will hardly budge.

The fact that the law has defined maximum repayment periods has a beneficial effect on these banking products. Because before 2012, a revolving credit repayment could last forever, or almost. As long as your budget does not allow you a high maturity, you could very well find yourself with a monthly payment comprising 99% interest for 1% of the capital. With interest fixed month-to-month, imagine how long it took for a small budget to pay off even $ 1,000. The worst case ever in the media was about a man who, stuck on his budget, was paying just over $ 20 a month, including $ 19 in interest and insurance. So certainly, the monthly payment is low, but to replenish a reserve of $ 900 in this train there, it would have taken him nearly 75 years! And over $ 17,000 in interest ...

As you can see, the most important thing in the repayment of a reserve of money is to control the duration of the repayment . Because it is this duration that determines the real cost of the loan.

In conclusion

Revolving credit therefore turns out to be a product that is both very practical and sometimes dangerous, although its dangerousness has become quite relative due to the Lagarde laws limiting the repayment time to 3 and 5 years, depending on the amounts borrowed. Normally, it is a bank loan that should allow you to manage your budget responsibly , while allowing you to face hard knocks, as well as crushes.

Nothing is ever perfect in this world, but everyone can choose to see the glass half empty or half full ...