The revolving credit meets a one-time need for cash, to be used as you wish, when you need it.
How does this type of loan work? What are the repayment terms and the applicable regulations?
Revolving credit: what is it?
The principle of a revolving loan is to make available to you a sum of money that you can spend at any time, either in full or in part.
This reserve is reconstituted as and when you repay the loan, within the limit of the maximum amount determined at the signing of the contract. You can then use the available money again, freely. Most of the time, a credit card is provided at the same time as the contraction of the loan.
This type of credit may be an option to resolve a temporary cash flow requirement or to provide for an unforeseen expense. It also represents an interesting alternative to unauthorized overdraft, whose rate applied to agios is very high.
The revolving credit is also known as a permanent loan, a revolving credit or a replenable loan.
Operation of the revolving loan
The amount that can be borrowed with a permanent credit is fixed according to your needs and your ability to repay.
The duration of the contract is 12 months, renewable. If the amount borrowed is less than or equal to € 3,000, the total repayment term can not exceed 3 years. For loans over € 3,000, it can go up to 5 years.
The lending institution will verify your creditworthiness before granting you the loan, then every 3 years. Once you have submitted the credit offer, you have 15 days to think about whether to accept it or not. You will be paid the funds 7 days after acceptance of the offer.
You will only have to pay interest on the portion of the reserve you have spent, and therefore not necessarily on the entire amount borrowed.
If you have not touched the reserve for 1 year, the revolving loan will be suspended in fact.
Repayment of revolving credit
The repayment of the revolving loan will not begin until after the cooling off period.
As we have seen, the term of the revolving credit agreement is 1 year renewable each year. 3 months before this deadline, the lending institution will have to give you the terms of renewal of the offer, as well as the associated repayment terms. Several options are available to you:
- These new terms are right for you: you have nothing to do, the contract runs normally.
- You wish to oppose these new conditions: you can do it up to 20 days before their entry into application. In this case, you will have to pay the loan in full.
- You can ask to turn your revolving loan into a conventional personal loan. The amount of monthly payments will become fixed and you will have a specified end date.
If you have trouble repaying your revolving credit, you can request a deadline extension from the lending institution, which means an additional period to pay your monthly installment. It is not obliged to accept your request, but it has the possibility to grant 2 deferrals a year if it wishes.
Revolving loan: what regulation?
The revolving credit is a consumer credit: the regulations that apply are those of the Consumer Code. The particularities of the regulations applicable to the revolving loan are as follows:
- Each monthly payment must include a portion of the borrowed capital (and not only interest).
- If you have been given a credit card at the time of signing the contract, it must clearly indicate on the back: “credit card”.
- If the borrowed amount exceeds 1 000 €, the lender must give you a proposal for amortizable credit: this allows you to compare this offer with that of the revolving credit, and so choose the one that suits you best.
- Every month, you must receive a document that summarizes the repayment status of your revolving loan. You will find in particular the amount of your monthly payment and the breakdown between the interest and the reimbursed capital, but also the capital available to spend, the amount of the sums already reimbursed and those remaining due, etc.