Also called revolving or permanent credit, revolving credit provides you with a reserve of money up to an amount fixed by contract with the lender. It is offered by traditional banks and organizations specializing in consumer loans, as well as by department store chains and online banks.
How it works ?
The operation is very simple, probably too simple. Consumer associations continue to criticize revolving credit. Indeed, once granted, your money reserve can be used as soon as you decide. You are free to dispose of it without having to justify it to the bank. Refunds are made at your own pace on the basis of a minimum monthly payment which must meet a double condition.
- Not be less than 15 USD, whatever the amount borrowed
- Do not exceed 3 years.
As you repay your loan, the money reserve is replenished and can be reused again. This mechanism is challenged by consumer associations because it is the source of many cases of over-indebtedness.
For this, it can grant you a credit card which is directly associated with your reserve and you can thus make your purchases as with a traditional card. You only pay interest on the portion actually used.
Renewal of the contract
Each year, the contract can be renewed by tacit agreement. The bank has the obligation to send you three months before the anniversary date a letter detailing the conditions of the renewal. You then have 20 days to refuse his proposal. If this does not suit you, it will suffice to notify it by registered mail with acknowledgment of receipt.
What are the disadvantages of a cash reserve?
Interest rates charged on revolving loans are often higher than on amortizable consumer loans. Even if the bank is not allowed to exceed the rate of usury, the conditions practiced at the moment are still close to 20%. Another drawback encountered with this type of loan: it is generally a loan with adjustable rate.
All the proposals that you will find will show an overall effective annual rate or APR. All banks are obliged to mention this in their proposals. This rate, a bit like the TEG for a mortgage, takes into account all the costs that fall on the borrower. The nominal rate of course, but also credit insurance if you have subscribed to it as well as the administration and guarantee costs.
How to subscribe?
First of all, know that if the revolving credit exceeds 1000 $, the bank has an obligation to establish a second proposal with a repayable credit in order to leave you the choice between the two formulas. Two options are available to you:
- You can first consult traditional banks, but it will be difficult to get competition without changing banks. In addition, gaining a new customer with this type of credit is not in their habits.
- Obtain your reserve from online banks. Take care to shop around with the big lenders but you will find significantly different conditions.
Our analysis As we can see, the 4 “tenors” of online revolving credit all offer almost identical revisable rates. Putting competition into play will therefore not lead to better conditions.
Another glaring observation, these 4 establishments reach or “flirt” with the rate of wear applicable on October 1, 2017 (20.75% for amounts not exceeding $ 3,000).
Note also that the average rate used in the 3rd quarter of 2017 for loans of an amount less than or equal to $ 3,000 was 15.56%. In conclusion, it is better to favor the traditional banking circuit and opt for a personal loan repayable at a fixed rate.
Case of the permanent loan taken out with a large brand
If you subscribe with a department store, you benefit from the same protection as with a bank. However, if the reason for this loan is the purchase of a consumer good, we do not recommend this type of financing.
You will have 14 days to cancel the financing, but this will not allow you to cancel the sale. Be wary of arguments that encourage you to take a reserve of money rather than a depreciable loan. It is not in your interest.