Revolving credit meets several rules and regulations that are important to know before applying.
It is based on the principle of an easily accessible cash reserve which is permanently available to the borrower. This sum of money can be used totally or partially.
It is automatically replenished once the repayments are made, thus constantly putting a reserve of money at the disposal of the client. The amount, the rate and the terms of repayment are defined at the time of the contraction of the revolving credit. Since the Lagarde law, the term revolving credit is no longer allowed, only the term “revolving credit” is accepted.
How does revolving credit work?
To obtain a revolving credit, the borrower must apply to a financial institution. The institutions authorized to distribute this type of credit are the banks, but also the organizations specializing in permanent credit or some large retailers.
Banks should consider the borrower’s repayment capabilities to provide a suitable credit amount. The borrower then has 15 calendar days to respond to this offer. If he agrees, he signs a loan agreement that commits him to repay the credit and the interest previously fixed. He will then be entitled to a withdrawal period of 14 days. In addition, a borrower insurance must be obligatorily contracted. The lending institution may offer one, but the borrower is free to choose his insurance contract.
Once the contract is established, the sum is transferred by check or bank transfer 7 days after the signature. A credit card specific to revolving credit can also be issued. The sum then remains in abeyance until the borrower decides to use it.
When the borrower spends all or part of the credit amount, the repayment process starts. The monthly payments according to the established conditions (financing plan) are deducted each month until the repayment of the loan. Once reimbursed, the starting sum is then reconstituted and again available to the borrower.
Amount, rate and duration of revolving credit
The amount and rate vary depending on the financial possibilities of the borrower. If the amount of the credit exceeds the $ 1000, the lender will have to match its proposal with a depreciable credit offer.
Since May 1, 2011, maximum repayment periods have been established by law. A credit of less than 3000 dollars will have to be refunded in 36 months maximum. A credit of more than 3000 dollars will have to be refunded in 60 months maximum.
Interest rates are often very high (20% on average) for revolving loans, but must nevertheless remain below the usury threshold applicable to the amount borrowed.
There are different types of permanent credit cards
- Private cards proposed and usable in a single sign or commercial chain.
- Multi-brand cards like the Cafenoga card proposed and usable in several brands of the same group and usually partners of a banking institution.
- Cards similar to traditional bank cards associated with networks such as Visa, Mastercard or CB.
Attention: since May 1, 2011, loyalty cards requiring use on credit are prohibited. The Lagarde Act requires revolving credit cards to have a cash payment function.
A highly regulated credit
To fight against the over-indebtedness often found with this type of credit, the French government has imposed with the Lagarde law, a number of rules that must be respected.
Each month, the lender is required to send a summary of the credit situation to each of his clients. Annually, the revolving credit can be renewed, terminated or modified. Termination requires full repayment of the amount due.
The change may include an increase or decrease in available capital. The application must be considered in the light of the applicant’s financial situation. In addition, the lender must review the file every 3 years to check the creditworthiness of the client. Finally, in case of financial difficulties to repay the amount due, a request for a deadline may be accepted under certain conditions set by the lending institution.