The revolving loan is a loan that does not require any proof. It can be subscribed for many reasons:
- fund an event,
- to have some money in front of you,
- pay unexpected bills,
- do some work …
This revolving credit without supporting documents is granted by a lending organization. The latter puts at your disposal a budget reserve in which you can draw freely, according to your needs. This reserve has a limited amount and you can use it in whole, in part, or keep it intact in case of need for further money.
This reserve decreases when you release funds. It is reconstituted at the rate of monthly repayments .
You have requested a revolving credit with a reserve of $ 1,000 and you want to use only $ 500. Once the money has been released, you will start paying repayment installments that will be used to replenish your initial reserve . Once it is reconstituted, the monthly payments will end. Until you draw money again.
Note that you can unlock, as much as you want, a portion of the available amount. You pay interest only on the amounts that have been released, and therefore borrowed, and not on the total amount available to you. Thus, if you do not unlock the money made available, you owe no interest in the loan , and do not pay any monthly repayment.
Unlocking is done in several ways:
- you can transfer the amount you want to borrow from your revolving credit to your current account,
- you use the credit card associated with the revolving credit to pay for your purchases.
The terms of the revolving credit
- The duration of the revolving credit is one year , renewable tacitly. If you do not terminate it expressly by mail, the credit is renewed each year.
- The bank or credit institution is required to check the creditworthiness of the borrower every three years . This avoids the risk of over-indebtedness.
It should be noted that the duration of one year only corresponds to the provision of the reserve. The repayments may indeed be spread out over a longer period.
However, the amount used must be refunded under:
- 36 months when the credit reserve is less than or equal to 3 000 dollars ,
- 60 months when the total amount of the credit exceeds $ 3,000.
Precautions with revolving credit
The great flexibility of revolving credit is not without compensation. To avoid over-indebtedness and its consequences, it is important to be fully aware of the risks associated with revolving credit . The simplicity of underwriting this type of loan often leads to a lack of thought at the time of engagement. High interest rates are an important point to consider before taking out such a credit and unlocking money. Indeed :
- interest rates are variable, unlike the amortising loan that offers a fixed rate;
- you can only know the rate when you release the amounts actually borrowed;
- it is impossible to calculate the total cost of the revolving credit when it is signed;
- interest rates are significantly higher than rates in other consumer credit cases, such as personal loans or restricted credits . In fact, interest rates for revolving credit are generally between 15% and 20%.
In addition, interest and insurance have priority over the return of capital . If you choose to repay small installments, the repayment term increases. So you pay a lot of interest and you only repay a small portion of the borrowed capital.
The best way to reduce the cost of its revolving credit is therefore to choose high repayment payments . You can also opt for a conventional consumer loan with a fixed interest rate.
Perves advice! The Lagarde law on revolving credit strengthens the protection of the borrower.