Revolving credit

The revolving credit (formerly credit standing or English revolving credit ) is a form of credit of putting at disposal of the borrower a reusable amount of money as and extent of its reimbursement to fund non predefined purchases. It is a special form of consumer credit and therefore falls under the relevant regulations.

The renewal of the permanent credit takes place as and when repayments of the borrower within the limit of the amount authorized by the organization and up to the amount of the refunded part. This credit formula is generally accompanied by a credit card usable in the network of affiliated businesses that accept this card. If this formula has the advantage of flexibility, it is usually expensive, can be a dangerous incentive to overconsumption – or over – indebtedness – and therefore requires excellent management of his account.

The success of revolving credit is based on a large and sustainable demand for small loans, coming from a large and solvent clientele in the majority of cases.

This form of consumer credit has generated various criticisms, especially from consumer groups 1 and parliamentary right and left 2 who have questioned his role in the indebtedness of households.

In France, the law o 2010-737  [ archive ] reforming the credit consumption Lagarde called Act 3 has profoundly changed practices (shortening the loan term, choose revolving credit and repayment loans, lack of commercial advantage linked to the subscription of a credit, prevention of over-indebtedness, prohibition of misleading advertising, etc.).

Principle

“Replenable” credit, it allows the borrower to dispose, freely and permanently, of a certain amount of money.

The amount thus available – sometimes called “reserve” – ​​is reconstituted each month as and when reimbursements are made, within the authorized limit.

Types

This credit can be practiced under one and / or both of the following forms:

  • the ” line of credit “: the credit is then similar to a renewable overdraft authorization linked to the borrower’s bank account and the borrower then draws on the cash reserve that is granted to him, either by check or by transfer;
  • the credit card : the revolving credit can actually be associated with a credit card, a name card issued by some department stores, or a specific credit card issued by certain financial organizations.

Amount

The amount of credit is based on income, other credits possibly contracted and the client’s relationship with his banker. The amount is calculated according to the rate of indebtedness, and the remainder to be lived of the borrower in the same way as for the personal loans to the consumption.

Duration

The duration of the contract is limited to 1 year (renewal by tacit agreement). Three months before the “anniversary” date of the opening of the account, the credit institution must obligatorily submit to the borrower an offer of renewal (judgment of the first civil chamber of the Court of Cassation of the); in addition, the increase in the ceiling lent must be the subject of a new offer of credit (judgment of the first civil chamber of the Court of Cassation of thelle S. c / Finaref).

A reserve of money refunded and not used over a two-year period (inactive contract), will automatically be closed (Loi Chatel, modified by the Lagarde Law, then by the Hamon Law)

Interests

Interest is deducted from the amounts remaining due at the end of each month. The TEG (overall effective rate) varies is often of the order of 20% (the rate of wear is often of the order of 21%).

The trick of many revolving credit companies is to allocate a large portion of the monthly repayments to a variety of expenses (shipping fees, withdrawal fees, insurance fees, account maintenance fees) which decreases as much the share of the repaid capital which is sometimes insignificant. The repayment term of the revolving credit when one does not draw on the available reserve can then be extremely long.

Guarantees

The subscription of a death and disability insurance is optional. A credit institution can not refuse you the credit on the sole ground of the refusal to sign the insurance.

Also called guarantee, at the signing of your contract, if a total or partial release of the funds is requested at a different rate of the master contract, a special offer must be signed by the customer. (Example: Capital made available  10,000 at annual APR 16.22% // Capital borrowed or used at opening:  2,000 APR of 9.9%). (Chatel law)

Refund

The rhythm of the refunds is left to the choice of the beneficiary within the limit of the respect of a monthly minimum. Credit institutions often offer two repayment methods: Fast mode and Slow mode. They make it possible to repay more or less rapidly the reserve used by varying the amount of monthly payments.

As for any credit, each monthly payment is divided into two parts: the first relates to the payment of interest due on the capital actually borrowed, the second is to repay a portion of the borrowed capital. Early repayment, partial or total, possible at any time, without penalties.

Borrower Protection

Since this is a consumer credit whose duration is generally greater than 3 months and the amount is less than  75,000 (since the Lagarde law of 2010), the Scrivener Law applies, aimed at informing and protecting the consumer:

  • pre-loan offer, specifying in particular the maximum amount of the credit, its total cost, the conditions and the cost of the possible insurance,
  • a cooling-off period called the date of validity of the offer, of 15 days, to allow the borrower to study the terms of the contract, and to allow the credit institution to cancel a sale without return of the contract. it is out of date beyond this period.
  • and a 14-day withdrawal period once the pre-loan offer has been signed, and if the contract is concluded remotely, during which the borrower can still retract. This period is reduced to 7 days in the opposite case.

Abroad

Abroad, the operation of a revolving credit is essentially the same as in France. It is almost always accompanied by a credit card. The borrower is free in his repayments, but always with a mandatory monthly minimum. However, there are some differences with France: in Belgium, for example, the credit must have been repaid completely at least once a year. The borrower can make his repayments by transfer (the repayment by levy is therefore not imposed). The allowed reserve increases according to the history of this one.

In some countries, such as the United States, Canada or even Belgium, it has become widespread or even essential when banks do not offer Visa or Mastercard cards attached to the current account (but only Maestro or debit cards). Electron).

Notes and references

  1. ↑ https://www.quechoisir.org/communiques/The-dangerous-combustion-continue/085CC892DE9A5D3EC1257582005CBECA.htm  [ archive ]
  2. ↑ http://communistes-republicains-partidegauche.assemblee-nationale.fr/expressions/economie-crédit-revolving-crédits-at-la-consumption-and-action-de-group-0  [ archive ]
  3. ↑ Lagarde Act economie.gouv.fr  [ archive ]

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