Revolving debt is a formula of consumer credit which is the provision of a sum of money that you can freely use. Freely, that is to say when you want (the credit line is used at any time) and as you want (it can be used in whole or partially, without having to justify its use). The amount available is replenished as reimbursements, within the authorized amount.
Principle of revolving debt
How does the revolving debt work?
When you purchase a revolving debt, you get a drawing right on a line credit (or “reserve”). The amount of the latter (“authorized amount”) is set initially by credit institution, but it can change over time, but not exceeding an amount ceiling. You do not need any interest as long as you do not use it; otherwise, the Interest is calculated on the fraction of credit used.
To use your reserve, you usually have several possibilities: either ask a check or bank transfer to your bank account, or use a specific card backed credit to make purchases. When you use your line of credit, a levy is made on your bank account each month until the reserve is fully restored.
The amount of the monthly payment is contractually fixed, but some credit institutions allow modulation. The monthly payment is used both to repay the borrowed capital – and therefore to rebuild the line of credit – to pay the insurance premium in the due time, and to pay interest due for the month.
The interest rate is variable, both in time (the rate varies each year or quarter based on a benchmark) and on the amount borrowed.
The specific case of cards
There are three types of cards, which differ in the restricted or universal their use:
– The cards distributed and accepted only by a sign or by signs belonging to the same group. They also act as a loyalty card for large stores, chains of hypermarkets or distance selling companies.
– Cards accepted by all retailers have signed an agreement with a specialized credit.
– Cards accepted in the same way that a conventional bank card, based on the national interbank “CB”, even on an international network (Visa card, MasterCard…).
Important to know
The benefit of the marketing and promotional benefits associated with the card cannot be subject to the use of credit, on the other hand, the creditor or credit intermediary is obliged to offer you the opportunity to pay in cash.
In the case of bank or store cards with the function of revolving debt the use of credit must result from the consumer’s express agreement expressed at the payment with the card or within a reasonable time upon receipt of his statement.