It is not uncommon to be committed to a revolving credit when you wanted a consumer loan. How’s that going?
First of all, the days of revolving credit are over. The Bank estimates the debt of UK households under revolving credit (commonly known as a revolving loan) at £ 31.9 billion in 2008. Between July and September 2018, only £ 18.6 billion remained outstanding for this type of loan. At the end of 2019, there was a staggering increase of 3% to 19.2 billion GBP, but what explains this increase? Consumer interest or something else?
What is revolving credit?
You have to know about this loan that is sometimes called permanent credit in order to be able to avoid its pitfalls. This financial product is a kind of cash reserve with a maximum threshold. The borrower can draw from it at will, according to his needs. They can also draw from it by transfer. In doing so, they do not need to ask their lender for permission. The loan actually works like a credit card. As soon as the borrower repays the money, the capital is replenished. It should be noted that the interest rate on revolving credit is quite high enough to approach the usury rate.
The trap of the facility
It is so simple to take out a revolving loan, you don’t even realize it’s already done. The worst part is that you think you’re taking out a conventional loan, but you’re not! Everything happens online. When you borrow a sum of less than £4,000, for example, online banking favours a permanent loan whose characteristics resemble a single-use loan in a few details.
The flexibility trap
The revolving loan has the particularity of allowing for the change of maturity. However, it is important to know that extending the repayment term is synonymous with increasing the cost of credit. We can say that the rate is also flexible. It is capable of fluctuating according to usage. You are therefore likely to see it increase the second time you use it, especially if the lending organization promised you a promotional rate at the beginning.
Things to remember
If you’re planning to take out small loan online, lenders prefer permanent credit. So keep your eyes open! Be sure to review the terms and conditions before you commit. If you see the term “representative example”, it is only valid for the first use, and what’s more, it must be repaid after a specific period of time. If you exceed the term, the interest rate will rise sharply. The trick is to pay back much earlier than planned. That way, you will reduce the cost of loan