What is a revolving credit?
To manage your finances successfully, understanding revolving credit is essential. I'll explain what it is and why it can be a clever choice.
Definition and characteristics of revolving credit
The revolving credit, also known as permanent credit or revolving credit, is a kind ofconsumer credit. It allows the borrower to have a flexible amount of money. This type of credit is often linked to a credit card. You can use this amount for various expenses and pay interest only on what you used.
Different names of the revolving credit
It is also known as money reserve, revolving credit, permanent credit, or reconstitutionable debt. These names show the flexibility of the credit, allowing you to reconstitute the initial amount at each repayment. This is super convenient for unforeseen or current expenses, without having to justify the use of funds.
How does the revolving credit work?
Renewable credit has a fairly special functioning and understands it effectively.
Terms of subscription
You can subscribe to a revolving credit from a financial institution, a financing company, or through their intermediaries. At the time of application, the borrower's solvency criteria shall be verified. Documents such as identity documents, income proofs and bank identification records must be provided. Subscriptions can be made online or in person.
Use of funds
Once the credit is granted, you can use all or part of the amount available. Interest is generated on what you used until you repay everything. Funds can be transferred to your bank account or used via an associated credit card, for purchases or withdrawals of cash.
Calculation of interest and TAEG
Interest on the revolving credit is calculated only on the amount used. The total effective annual rate (AEG) is variable and changes according to market conditions. For example, rates can range from 15% to 25%.
Advantages and disadvantages of revolving credit
Before you sign up for a revolving credit, knowing your good as well as your bad side is essential to making an informed choice.
Main advantages
The revolving credit is super flexible, allowing the funds to be reused with each repayment. It is quick to get, often without the need for proof of expenditure. In addition, repayments adapt to the borrower's financial capacity.
Risks and disadvantages
Despite its benefits, revolving credit can lead to over-indebtedness. Interest rates can be high and its ease of use can lead to abuse. You have to manage your expenses well to avoid too much debt.
Testimonials and expert advice
Many consumers shared their experiences with renewable credit. For example, Ms. Dupont, a Floa Bank client, appreciates the great flexibility of this type of credit. But it stresses the importance of staying vigilant to avoid too much debt. Financial experts recommend that the revolving credit should not be used permanently but rather for one-time needs.
Compared to other types of consumer credit
To master your finances, discover everything aboutRenewable credit card: instructions for use, costs and precautions to know.
Type of credit
| Renewable credit | Interest rates | Conditions | Flexibility |
|---|---|---|---|
| No evidence required for use | 15% – 25% | Use justification required | High |
| Personal loans | 5% – 10% | Appropriation | Average |
| Variable depending on purchase | Must be used for specific use | Doit être utilisé pour une utilisation spécifique | Low |