Revolving credit is once again in the spotlight. This following an investigation that the UFC Que Choose who sent test consumers to request financing for a purchase of household appliances ranging from 1000 to 2500 euros from various organizations, including distributors (hypermarkets) as well as banks and specialized organizations.
Of the 1,118 loan proposals selected, more than 72% of the loans offered were revolving loans (rather reserved for wealthy households facing temporary cash flow problems) while there are more suitable, less risky and less expensive loans such as the affected credit.
Another point of this UFC finding which to choose:
- 82% of establishments were not clear on the characteristics of the loan (total cost, interest rate, monthly payment, amount of the reserve, etc.)
- 87% did not check the creditworthiness of the borrower.
- 94% of cases in points of sale were allocated a loyalty card with a revolving credit.
This is what happens when your banker dons his bad salesman costume and only thinks about his goals, his bonuses and the bank’s profits!
Dangers of over-indebtedness
Beware of the dangers of over-indebtedness which can happen quickly if you take out several revolving loans, reserve money or mortgage. The addition of monthly payments, even small monthly payments at the start, inevitably leads to large monthly payments if you are not careful with the expenses. The threshold of over-indebtedness is reached, once the debt ratio of 33% has been crossed. Beyond this famous third, advised by banks and analysts, we enter the sphere of over-indebtedness.
What rate for a reserve of money?
Banks and credit organizations have the art of making you dangle large sums that can be made available in just a few minutes with more than tempting slogans like this:
- 0 € for so many months
- a personalized TEG
- borrow 1000 € and repay 30 € per month.
Passing the best… hard to resist for a thousand and one valid reasons, but watch out for the backwash.
This type of often revolving credit (revolving credit) often leads into an infernal spiral with interest rates most often revisable in the contract and close to 20%. Organizations offering rates close to 17% boast of being the best. This is the type of credit that is often offered to you in your blue card contracts with agent reserve, at your appliance dealer to pay for your equipment in installments. The advice is to look at the total cost of the purchase and to favor the free payment offered by the stores, but beware there too some abuse the term free of charge implied without administrative fees but with interest.
It is important to present the affected credit, insufficiently offered by banking organizations which prefer revolving credit or a card with a reserve of money therefore a revolving credit by tacit agreement with often exorbitant interest rates of around 20%.
The affected credit is linked to the direct financing of a purchase. The loan contract therefore depends on the execution of the purchase and therefore ends upon full repayment thereof. The credits allocated must not exceed € 21,500 and are generally spread over 1 year. In addition, the borrower also benefits from the protection of the Scrivener law .
A good knowledge of credit saves money.