Permanent credit, revolving credit: we know several names, but revolving credit has one principle: that of making a sum of money available to a borrower. This is accessible at any time and is replenished at the option of reimbursements. This type of borrowing is strictly regulated by law, in order to guarantee better consumer protection. This does not prevent it from being regularly pointed out for its risks of over-indebtedness
Revolving credit: a specific operation
Revolving credit is a consumer credit formula that differs from conventional loans. It is characterized by the provision of a reserve of money that the borrower uses according to his needs. The latter draws from this provision, all of the available reserve. Unlike the affected loan, the granting of the revolving loan is therefore not linked to a specific project or to a good to be financed. But its main feature lies in its available reserve, which is replenished according to reimbursements, within the limit of the maximum amount authorized. Permanent credit is available in banks and consumer credit organizations, but it is also offered as a financing solution by mass retail and mail order brands. Reason why it is considered by its detractors as an incentive to indebtedness.
Revolving credit: control mechanisms
If for 12 consecutive months the borrower does not use the available reserve, the revolving credit contract is suspended. It will be terminated automatically after one year of additional inactivity. Reactivation can only take place at the express request of the borrower.
Finally, the lending organization sends the borrower a monthly document summarizing all the transactions carried out. This document contains information on the general condition of the credit.
Revolving credit: what actual duration?
The revolving credit is contracted for a period of one year, renewable. Before each renewal of the revolving loan contract, the lender consults the national personal loan repayment incident file (FICP). He also checks the borrower’s creditworthiness every 3 months.
In addition, 3 months before the anniversary date of the contract, the lending organization informs the borrower of the conditions for renewal of the contract and the terms of reimbursement of the principal owed. The borrower then has 20 days to express his disagreement with the changes proposed by the lender. To do so, he must return the refusal slip annexed to the letter. In this case, he must reimburse the sums used, according to the conditions of the contract. Finally, revolving credit can, on each anniversary date, be transformed into conventional consumer credit.
Revolving credit: a framed credit card
To use his revolving credit and draw on the money reserve, the borrower can request a bank check or a transfer to his account. He can also use a specific card associated with permanent credit. A credit or loyalty card, the use of which is strictly governed by current legislation:
– First, if such a means of payment is given to the underwriter of the revolving credit, he must indicate on the back and in legible characters, the credit card mention.
– Then, the law prohibits loyalty cards which can only work with credit payments. Not only, these means of payment must imperatively have two options: on credit and cash. But in addition, the cash payment function must be activated by default.
Finally, the commercial advantages offered by a loyalty card can in no case be subordinated to the use of permanent credit.