A revolving credit is a line of credit of a particular kind. It is an envelope, left at the disposal of the customers according to their capacity of refund and / or their conditions of resources, and usable in whole or in part. It is called renewable because the funds are reconstituted as and when repayments. For each monthly payment paid, a portion of the amount of the installment is reinstated in the usable envelope of the revolving credit. So much so that we can surf constantly on the same envelope, depending on our borrowing and our repayments.
Is revolving credit really healthy to use?
Of course, the envelope in question is not made available free of charge. Loans outstanding are subject to interest, the rates of which are for the vast majority of cases revisable and quite high. The flexibility of the system therefore has a cost, and in some cases can be a trap rather than a relief.
Indeed, in case of a hard blow, and as long as our budget is already tight, the additional burden generated by the monthly repayments adds to the household budget. The trap is to subscribe to a reserve of money to make ends meet, and to buy a second to meet the needs related to the expenses generated by the first. Etc.
But since the procession of Lagarde laws, implemented from January 2012, things have changed for revolving credits. Until then, no time limit was fixed in the repayment period. The sums of interest and insurance being fixed, it was quite possible, with a monthly payment of $ 45, to repay only $ 1 of capital every month. This could extend repayment terms indefinitely and make it an extremely expensive line of credit, provided we can not increase our monthly payment. Imagine having to bail out the $ 900 cash reserve at this rate. It would have taken 75 years !!!
Fortunately, from now on, and since these laws, the amounts used in revolving credits must be repaid in a certain period of time:
- Sum less than $ 3,000: up to three years
- Sum greater than $ 3,000: maximum of five years
This allowed a better visibility on these banking products a little special. And greater protection for bank users as well.
Are there benefits to having a cash reserve?
But revolving, although expensive and sometimes tricky, have not only disadvantages. On the contrary. Everyone does not have an envelope of hundreds or even thousands of USD like that. And how to do in case of failure of a good household appliances? Or serious breakdown on the vehicle? Or school stay to settle? It is difficult nowadays to live without a refrigerator, and insurance does not always take care of everything.
The revolving credit solution simplifies life. The envelope is available. So we only need to use the funds we really need and then repay the borrowed amount over several months. This allows you to control your monthly budget. In this sense, a revolving credit is much more responsive and practical than a conventional depreciable loan. First, because the funds are directly at their destination and do not require any justification. Secondly, because a depreciable loan requires that all the funds be released before starting to repay. Major temporal and administrative disadvantages that are not found in the money reserves.
Another point emphasizing the flexibility of these financing products, it is about the immediate consumption, the blow of heart, the opportunity to seize. Once again, it is not always obvious that we have a large unlockable amount on our bank account by snapping their fingers. This is why banks have set up the possibility, via an option most generally, to back a credit card to a revolving credit. So, if you finally find the article you have been looking for for so long, if you come across the opportunity of the century, you are not financially deprived. A simple passage of the credit card, a payment on credit, and it is the reserve of money which will be imputed of the sum. In fact, you will not have to suffer any immediate consequences on your budget, any more than bank charges or agios on your current account. You are free to calibrate your envelope recovery time. It is this duration that will dictate the amount of your future maturities.
The last interesting point in this type of operation is that it is possible to fully refund the sums used, in one go, and without penalties, when we want. The good deal or the unexpected happened on the 15th of the month? Once the salary is received on the 30th, nothing prevents you from paying the revolving credit. And here is another point often very complicated to negotiate on depreciable loans.
Revolving credit, comparisons between banks.
Throughout these pages, we chose to dissect seven renewable credits from seven different institutions. You will find, according to your reading, that these banking products are very similar, even between competing institutions. Differences from one revolving credit to another relate to the level of the rates, the maximum amount of envelopes, or on the backing of a bank card or not.
But among the banking, these two are not necessarily the cheapest. The CreditCole Free Asset, or the revolving credit of Bank Loat, offer their customers much lower rates. In fact, only the LCL seems much more expensive. We say “seems” because the scales of this bank, a subsidiary of CreditCole, are not listed anywhere. We therefore relied on the example put forward on the product page to vote. And with a rate of almost 20% revisable for a repayment period of 3 years, it is actually the most expensive. This is not necessarily surprising and remains consistent with the LCL’s general guideline for fees.
How are these banking products really articulated?
On the other hand, we looked at two finance companies; Cashieca and Eicredit. There are many others, but these two are quite representative of what we can find on the market. On the one hand, Cashieca offers us a reserve of money alone, and capped at $ 6,000. On the other Eicredit associates a blue card, as do the banks, but also caps its envelope usable to 6 000 $.
In the other pages of the site, we will focus more on the revolving credit itself than on the banks that are able to offer it. How to terminate a revolving credit? Can we make a reliable simulation of it at home? How to get a revolving credit fast? What are the different cards associated with revolving credits? What advantages are there?
These are all questions that we have tried to answer, as precisely as possible. Because, indeed, it is quite simple to calculate and obtain the figures concerning a loan depreciable, as the calculation of the terms of a revolving loan is much more complex. In fact, the calculation methods are very different. And the fact that a partially used envelope can both be used again and still being reconstituted does not make it easy.
Finally, we will just mention a fact. Know that this type of loans, which we could call rechargeable, are not a French exclusivity. Far from it. In addition, the same mechanism may also exist on larger loans, including loans related to real estate. This is called rechargeable mortgages. Some Anglo-Saxon banks have made it a specialty.
The principle of this type of loan can be extremely practical, flexible and responsive; and at the same time, very expensive, even dangerous. It is all about anticipating the budget and the time needed to use the reserve. It is really on these two points that the total cost related to these revolving credit operations is played out…