Need money fast? ” Increase your purchasing power” ” It’s time to finance your desires! “; Slogans providers of revolving debt who do everything to make consumers believe that happiness is in ready. Revolving debts are distributed by banks, specialized credit institutions and retailers they allow the borrower quickly dispose of a sum of money which he can spend as he pleases. And the volume of credit available reconstitutes as of repayments.
But this freedom to spend is hard-earned: rates vary between 15% and 20%, and over a third is above 19%! However, if the revolving loans represent only 21% of total consumer credit to today’s households it is people with low incomes who rely primarily.
The different forms of revolving debt
There are two main types of consumer credit: appropriations and non-affected. The first, which represent 19% of consumer credit and finance a specified property (the purchase of a new car, a product appliances …) with a fixed rate and timing at which the debt is discharged. The latter are divided between personal loans (60%) and revolving debt (21%). Personal loans are intended to finance projects unspecified amount in advance, such as work or a wedding, at a fixed rate over a specified period. Revolving credit, also called “cash reserve” is a more complex product that serves as a tool of cash management to a household. This is the one that leads to more “bad debts”, which reduced the standard of living sustainably.
A juicy product for lenders
Subscribe to a revolving debt becomes as throwing amounts into the unknown: for example, if you ask for a “cash reserve” for an amount of $1 000 you repay only $40 per month, an amount that seems bearable. But nothing is said about the number of months during which you will have to pay this sum … Normal rates are variable – they change every three months depending on the evolution of credit conditions – the duration of repayments is regularly readjusted. However, in all cases, it will be long, very long. Weak installments, to entice the borrower lead to strongly extend the repayment period. And given the level of rates charged, the capital is repaid very slowly, since most used to pay interest monthly.
What constitute a quasi-rent for lenders, for which the revolving credit facility is very profitable despite the risk of default of a party borrowers. The pension becomes permanent even when the client decides to reuse the “cash reserve”. Entering into a debt crisis quickly turns into permanent indebtedness.
This trend is even more common than credit institutions lead to crime by increasing attractive offers, including via the Internet: promotional rates (for a few months), nothing to pay for the first three months, etc.. Hard to resist in a society where everything grows to consume: the ubiquitous advertising, social norms that make it incongruous today do not have a mobile phone, a flat screen TV, a living room, etc..
With the crisis, more households affected by unemployment or facing an unexpected expense, may use the revolving debt “increasingly, we find that households use credit to meet their basic needs and fulfill their truck. But why not use other forms of consumer credit, which offer the most often much lower rate? If some households do so for reasons of convenience, most have no choice: 15% of households do not have access to this type of credit. If a young couple of graduates, both in permanent contracts, can access a personal loan at 6% to buy a used car, a couple of the same age in precarious employment that will access revolving debt at 16%.