Often considered to generate over-indebtedness of households, revolving credit should be handled with care. It is also strictly framed by law in order to best protect the interests of the borrower. A reminder of the legal framework and the right attitudes to adopt in order to avoid unpleasant surprises!
Revolving credit: enhanced protection for the borrower
By subscribing to revolving credit, the borrower benefits, as with other consumer loans, from a period of 14 days to reverse his acceptance of the loan offer.
Article D312-28 of the Consumer Code provides that the minimum repayment term is $ 15, regardless of the amount of the loan used. Each due date must include the reimbursement of a share of the capital.
The maximum duration of the revolving loan, whether or not it is guaranteed by insurance, is strictly controlled according to the amount of cash granted to the borrower. She is from :
– 36 months for loans of $ 3,000 or less.
– 60 months for amounts of over $ 3,000.
Similarly, when a credit card is associated with the revolving loan, it must be marked “credit card” in legible characters. In addition, no promotional advantage provided by this means of payment must be linked to the use of revolving credit.
Revolving credit: real risks that remain
Despite the reform of certain aspects of revolving credit, risks persist and should be watched closely. This is what explains why revolving loans were involved in 70% of over-indebtedness files in 2015, according to a study carried out by Good Finance.
Once the permanent line of credit is open, the borrower can draw from it what materialize his projects without any proof being asked. Consequently, the flexibility that characterizes the use of this type of loan can encourage consumers to make ill-considered purchases.
Then, the borrower may be tempted to use the reserve, even though his repayment capacities have become insufficient, as in the event of unforeseen events (accident, illness, unemployment, etc.). The consumer is exposed in this case to a real risk of over-indebtedness. Given its specificities, this method of financing, therefore, requires a lot of caution on the part of the borrower.
Revolving credit: a high cost with complex calculation
Flexible, easy to use, with accessible monthly repayments, revolving credit has definite advantages for the consumer. The downside is that the lower the monthly payments, the higher the rate, and the more expensive the credit.
The interest rates charged for revolving credit are much higher than those offered for amortizable loans. They are also generally close to the wear rate defined by Good Finance.
Furthermore, the final cost of the permanent loan is impossible to know in advance:
– on the one hand, it can be reviewed annually according to fluctuations in the financial markets;
– on the other hand, it varies according to the amount used, the frequency of use and the duration of the loan.
Difficult under these conditions to have an overview of the amortization plan for this loan.
Revolving credit: good reflexes to adopt
Before subscribing to revolving credit, the borrower must privilege, as much as possible, the traditional forms of the loan (restricted loan or personal loan). Otherwise, he must avoid a revolving credit with too low monthly payments.
And think of transforming it, as far as possible into conventional consumer credit, during the annual renewal of the contract. In any case, the faster the borrower will repay his permanent credit, the lower the cost.
If consumers use revolving credit, they should know that borrower insurance is optional. If such a solution is advised by the lender, the borrower remains free to subscribe to the insurance of choice by choosing the organization that best suits his needs. Two types of insurance are offered in this case:
– death and disability insurance;
– job loss insurance.
Efficiently evaluate revolving credit offers
If the revolving credit responds to an urgent need for cash, the borrower must be able to evaluate the offers of the lending organizations by comparing:
– the overall effective annual rate (APR);
– management costs or administrative fees;
– the cost of loan insurance and its conditions.
In addition, insofar as the interest rate on the revolving credit is recalculated each year, the lender must inform the borrower of the effective total rate (TEG) charged:
– in the initial loan offer;
– during the annual renewal of the loan contract;
– every month by means of the account statement.