It is not uncommon to be committed to a revolving credit, when you wanted a consumer loan. How’s it going?
Let us first know that the time when revolving credit was popular is over. The Best Bank assesses the debts of French households under the revolving credit (commonly called revolving loan) at 31.9 billion dollars in 2008. Between July and September 2017, there remained only 18.6 billion outstanding for this type of loan. At the end of 2018, there was a fierce increase of 3% to reach 19.2 billion dollars, but what explains this increase? Consumer interest or something else?
What is revolving credit?
You have to know this loan, which is sometimes called permanent credit, to be able to thwart its traps. This financial product is a kind of money reserve with a maximum threshold. The borrower can draw as he pleases, according to his needs. He can also draw on it by bank transfer. In doing so, he does not need to ask his lender for permission. The loan actually works like a credit card. As soon as the borrower repays the money, the capital is reconstituted. It should be noted that the interest rate on revolving credit is quite high enough to approach the rate of usury.
The easy trap
It is so simple to take out a revolving loan, so much so that one does not even realize that it is already done. The worst part is that you think you are taking out a conventional loan, but no! Everything happens online. When you borrow less than $ 4,000, for example, online banking favors permanent credit, the characteristics of which resemble a few details, like a single-use loan.
The flexibility trap
The revolving loan has this particularity to allow the change of maturity. However, be aware that extending the repayment deadline is synonymous with increasing the cost of credit. You could say that the rate is also flexible. It is able to fluctuate according to usage. So you are likely to see it increase the second time you use it, especially if the lender promised you a promotional rate at the start.
If you intend to take out small credit online, be aware that lenders prefer permanent credit. So keep an eye out! Examine the conditions carefully before committing. If you see the term “representative example”, this is only valid for the first use, which is moreover, to be reimbursed after a specific period. If you exceed the deadline, the rate will increase significantly. The trick is to pay back much sooner than expected. This will lower the cost of credit.