Permanent credit, maximum rate and repaymentOn March 7, 2019 by Delores Espinal
The revolving credit entitles you to an overdraft within the limit fixed by contract. This reserve of money also called permanent credit is often associated with a credit card that allows you to pay your purchases freely up to the reserve you have.
Thus, if you have obtained a cash reserve of 5000 €, you can spend this sum in various purchases, in all the signs that accept the card and they are numerous.
How do you repay?
The principle is simple. From the first use you start to repay the loan. In your term, as for any loan, you have a share of capital depreciation and a share of interest. You thus partially reconstitute each month your reserve of money . Of course, if you do not use your revolving credit , you do not pay anything.
The duration of the contract
The duration of the contract is usually one year, renewable by tacit agreement. Three months before the deadline, you must be informed of the terms of renewal of the contract. You have the option, if you wish, to convert your revolving credit into a classic amortizable loan for the amount remaining due.
Where are the dangers of revolving credit?
With these credit cards, you can buy everything that seems to you: hifi, small appliances, travel, holidays … The temptation is great to consume without moderation. The risk is real in the most fragile households for whom this form of loan can lead to over-indebtedness.
The LAGARDE reform strengthens the right to information
The recent reform on consumer credit strengthens the right to information. Revolving credits are particularly targeted. Thus, the bank is forced to offer you a revolving loan as an alternative to your revolving credit when the amount of the loan is greater than 1000 euros.
Analysis of a permanent credit
imagine the following offer:
You can benefit from a means of payment thanks to the blue card linked to your permanent reserve up to a maximum amount of 4 500 € and for a duration of one year renewable , subject to study and acceptance at the rate of 18.5%.
Minimum monthly repayment, excluding optional insurance: 3% of the debit balance with a minimum of € 15.24. The total cost of credit varies according to the amount and duration of the overdraft used.
- Up to 499 € you can choose to refund 16 € per month, 25 € per month or 50 € per month.
- Up to € 990 you can choose to pay back € 30 per month, € 45 per month or € 95 per month.
- Up to € 1,500 you can choose to pay € 45 per month, € 75 per month or € 150 per month.
- Above 1500 € 3% of the debit balance.
For simplicity’s sake, we will not take into account the fees and the insurance, but know that this only adds an additional cost to the reserve.
Let’s take an example by studying a classic offer
Discovered from 450 €
Suppose you make a first purchase of 450 €. You will therefore start to rebuild your reserve by making payments of your choice between 16, 25 or 50 € per month.
The question is: If you choose to pay € 25 per month how long will it last for your repayments and what will be the cost of this credit?
It will take (and I refer you to this page to include the calculation) pay 21 monthly payments of 25 € plus a balance of 6.18 €. That is a total cost of 81,18 €.
With a classic consumer loan of € 450 over 24 months at 8%, the monthly payment would be € 20.35, for a total cost of € 38.4 and over 12 months the monthly payment would amount to € 39.14, for a total cost of 19.68 €. We see all the limits of such a reserve.
In the case of larger overdraft the gap will be even more glaring.
Suppose your purchase is 1400 €
You choose to pay 75 € per month. How long will your repayments last and what will be the cost of this credit?
It will pay 22 monthly payments of 75 € plus a balance of 13.75 €. That is a total cost of 263.75 €.
With a classic consumer loan of 1400 € over 24 months at 8%, the monthly payment would be 63,32 €, for a total cost of 119,68 €.
What happens when you reach the maximum of your reserve
You have reached 4500 € outstanding. Your refunds will be 3%, that is to say 135 €.
It will pay 45 monthly payments of 135 € plus a remainder of 132.77 €. That is a total cost of € 1707.77.
With a classic consumer loan of 4500 € over 45 months at 8%, the monthly payment would amount to 116.08 €, for a total cost of 723.57 €.