Much criticized because of the abuses it has caused, revolving credit, also called “permanent credit”, “revolving credit” or “replenishable credit”, consists in making available to a borrower a credit that he can replenish and use as desired. Often associated with a credit card, this reserve of money decreases when the borrower uses it and it is gradually replenished when he repays his credit. A little reminder of the fundamentals…
What are the characteristics of revolving credit?
The principle is quite simple: a lender provides you with a sum of money that you can use, in whole or in part, to make purchases in one or more times. You can use it to make purchases, in one or more installments. The only obligation is not to exceed the maximum authorized amount. As your repayments are made, the “available credit” is replenished. The interest that you repay only relates to the amount that you actually borrowed. Each installment must include a minimum repayment of the capital borrowed. Generally, a card is given with the credit, on the back of which must explicitly appear the mention “credit card”.
Revolving credit can be offered to you by a bank or an organization specializing in consumer credit. It is also distributed by large retailers or by mail order stores.
What are the terms of commitment and repayment of revolving credit?
A revolving credit agreement has a subscription period of 1 year. This period can be extended each year. The lender who offers you to renew the contract must consult each year the file listing the information on characterized payment incidents and every 3 years he must also check your creditworthiness. In addition, 3 months before the annual deadline, the lender is required to inform you of the conditions of renewal of the contract and the terms of reimbursement of the sums remaining due. You then have up to 20 days before their effective application to object or not to oppose the proposed modifications. In this case, you will have to reimburse, under the conditions preceding the modifications, the amount of the money reserve already used.
Regarding the credit repayment period, if the contract was signed after April 2011, the credit repayment period cannot exceed 36 months when the total amount of the credit is less than or equal to $ 3,000. When it is greater than this amount of $ 3,000, the reimbursement period must be less than or equal to 60 months.
What information should be gathered before committing?
Since the Lagarde Law on consumption, the information methods have been strengthened. Indeed, the revolving credit rates being quite high, some borrowers were not aware of the sums they were committing and the abuse of revolving credit could quickly lead to a situation of over-indebtedness. Thus, before offering you revolving credit and as with any consumer credit contract, the lender must inform you so that you can measure your commitment and check your creditworthiness. He gives you a copy of the contract offer and you have 15 days to respond. The funds will only be paid 7 days after acceptance of the offer. You also have a withdrawal period and if the amount of credit is greater than 1000 $, the lender must accompany his proposal with an offer of depreciable credit so that you can compare these 2 financing solutions.
Note: you can obtain at any time the reduction of your credit reserve, the suspension of your right to use it or even the termination of your contract. You are then required to reimburse, under the conditions appearing in the contract, the amount of the reserve used. You are also allowed to request the transformation of your revolving credit into conventional credit during the annual renewal of your contract. The amount of your repayments then becomes fixed and you know the end date of your loan.