Revolving credit, also known as money reserve, permanent credit, or revolving credit, is a form of consumer credit
What is a revolving credit?
Revolving credit, also known as money reserve, permanent credit, or revolving credit is a form of consumer credit. It makes available to the borrower a sum of money in a special account opened with the institution providing this credit, permanently as for a personal credit. With this sum he can finance the purchases of his choice. this type of credit constitutes a particular form of consumer credit and is therefore subject to the regulations that result from it.
This revolving credit formula is generally accompanied by a credit card usable in the network of affiliated businesses that accept this card. While this formula has the advantage of flexibility, it is generally expensive and can be a dangerous incentive for over-consumption or over-indebtedness. It therefore requires a perfect management of his account. Since the Lagarde Act, the first part of which came into force in September 2010, only the term “revolving credit” has been accepted.
How does revolving credit work?
The revolving credit operates in the following manner: the borrower can use the sum made available to him in whole or only in part, to make purchases of goods, in one or more times, without justification of expenditure as for a personal loan.
This reserve of money is free if it is not used. However, the borrower must not exceed the maximum amount allowed. The amount available is reconstituted as and when repayments, respecting the limit of the maximum amount allowed. When the line of credit begins to be used, the interest only relates to the amount used. The amount of revolving credit is granted based on the repayment capacity of the borrower.
The duration of the revolving credit agreement:
The duration of the contract is one year and is renewable each year. Three months before the annual deadline, the borrower must be informed of the conditions of renewal of the contract and the terms of repayment of the amounts remaining due.
The borrower has the option to pay cash all or part of the outstanding amount, without being limited to the amount of the last installment. He may also at any time request the reduction of his credit reserve, the suspension of his right to use it and the termination of his contract. He is then required to repay the amount of the revolving reserve subject to the conditions set out in the contract. In general, the refund is in monthly installments.
The success of revolving credit
Its success is based on a significant and long-term demand for small loans, coming from a large and solvent clientele in the majority of cases. The revolving credit is offered by banks, but also by some department stores, hypermarket chains or mail order establishments, and by the organizations specializing in consumer credit.
A mandatory prior offer
In the case of a revolving credit, the prior offer is mandatory for the initial contract and for any credit increase. A prior offer is submitted to the borrower with the mandatory information appearing on any loan for consumption. It must specify, among other things, the maximum amount of the credit and, if applicable, the annual percentage rate of charge (APR) of the credit.
The repurchase of credit makes it possible to regroup in a single monthly payment, the affected loan, the installment loan, the revolving credit or other credits with the consumption.