Revolving credit is a special form of consumer credit and is therefore subject to the relevant regulations. Not necessarily allocated to the purchase of a specific product or service and of great flexibility of use, revolving credit is generally used in fractions, at the discretion of the borrower.
The borrower can request at any time a reduction in his credit reserve, the suspension of his right to use it or the termination of his contract.
The law imposes on financial institutions the obligation to reiterate the prior offer of credit in the event of an increase in the credit granted.
Finally, if the revolving credit is not used for 3 years consecutively, the revolving credit institution must send the client a document indicating the conditions for the renewal of the contract.
Revolving credit: Principle
“Reconstitutable” credit, this revolving credit allows the borrower to have, freely and permanently, a certain amount of money.
The amount thus available – sometimes called “reserve” – is replenished each month as reimbursements are made, within the authorized limit.
Revolving credit: Types
This revolving credit can be practiced in one and / or both of the following forms:
- the “line of credit”: the credit is then similar to a renewable overdraft authorization, linked to the borrower’s bank account and the latter then draws from the cash reserve which is granted to it, either by check or by transfer;
- and the credit card: revolving can indeed be combined with a bank card, a private purchase card issued by certain department stores, or a specific credit card issued by certain financial organizations.
Revolving credit: Amount
The amount of the credit depends on the income, other credits possibly contracted and the customer’s relationship with his banker. It is generally between 2 and 3 times the monthly net income.
Revolving credit: Duration
The duration of the contract is limited to 1 year (tacit renewal).
Revolving credit: Interest
Interest is deducted from the sums remaining due at the end of each month. The TEG – in other words, the overall effective rate – varies between 14 and 20%.
Generally, death and disability insurance is required.
The rate of repayments is left to the beneficiary’s choice within the limit of compliance with a monthly minimum.
As with any depreciable loan, each monthly payment breaks down into two parts:
- the first relates to the payment of interest on the capital actually borrowed,
- the second is to reimburse part of the capital borrowed.
Early, partial or full refund, possible at any time, without penalties.
Revolving credit: Borrower protection
With regard to consumer credit, special rules, aimed at informing and protecting the consumer, apply to the initial contract:
- prior loan offer, specifying in particular the maximum amount of credit, its total cost, the conditions and the cost of any insurance,
- reflection period of at least 15 days, to allow the borrower to study the terms of the contract,
- and withdrawal period of 7 days once the prior loan offer has been signed, during which the borrower can still withdraw.