Category Archives: Credit

Beware of revolving credits

In a matter of quick credits and credit cards the catalog is overwhelming. On this occasion we look at a product not free of controversy that is offered in the form of a card and whose characteristics offer interesting advantages and disadvantages that must be taken into account. They are credits or revolving cards.

What is a credit or revolving card?

What is a credit or revolving card?

It is said that a credit or a card is revolving if it is rotating. This means that the amount of money available increases and decreases respectively as the holder makes purchases and pays the expenses. One of the conditions is that a credit limit is established, but not a limit of operations. The customer holding the card has a period of time – usually one month – to reach the maximum limit set by the financial institution. Once this period has expired, you can make a payment with which to restore said credit, without having to restore yourself to the limit.

For example. If a revolving type card has a credit of 1500 euros per month and the client consumes 500 during the 30 days, the following month the limit is set at 1000 euros and the debit is 500 plus the interest for what was spent. The client has the opportunity to pay a minimum or pay the total spent to restore the maximum credit.

Advantages of revolving cards or credits

Advantages of revolving cards or credits

Basically an advantage is offered as the most striking of this type of revolving cards compared to traditional cards. With this system the client has a limit and what he consumes can be returned by means of fixed monthly payments or by percentages of the consumed. It is not necessary to put the counter to zero every time a month is consumed, but there is a great flexibility -no free of drawbacks-.

Disadvantages of the revolving system

Disadvantages of the revolving system

You could say that the revolving credit system can be interesting for some clients. However, it is more advantageous for others to apply for a quick loan or mini-loan.

In the list of the “against” credits and revolving cards it is worth noting that there is a danger in the comfort of the return of the credit. While it is possible to set a small monthly fee to settle the debt or choose the option of a percentage of the debt, it is obvious that the part will be less than the whole. That is, if what is paid is a part of the debt, the interests of what remains are offset with those of the following month until the debt becomes difficult to assume in many cases.

On occasion, the case of people whose monthly payment was less than the interest generated was pointed out, so the debt at the end of the year charged a capital. To which are added annual interests higher than those of a loan, with TAE rates of 20 or 30%. In this regard, the judicial authorities have pronounced with a resounding sentence issued by the Supreme Court in 2015 with respect to credits and revolving cards.

The Supreme Court and the revolving credits

The Supreme Court and the revolving credits

In 2001 a Catalan citizen signed a contract with the bank Sygma Hispania for which he was granted a consumer credit under the revolving credit model. According to the agreement, the client had a monthly limit of 3000 euros for the expenses he considered convenient. The disposition of the money was at the request of the user by credit card or telephone call.

The bank established an interest rate of 24.6% on the contract, which would add 4.5% in interest for late payment.

In total, the client arranged for the duration of the contract of 25,634 euros, generating interest of 18,568 euros, of which he paid a third.

In a first instance and in a second review by the courts of Cerdanyola del Vallés and Audiencia de Barcelona, ​​the bank was given the reason. However, the cassation appeal reached the Supreme Court, who issued a final judgment in favor of the client under the Law of Repression of Usury (1908), which establishes as “usurer” that credit whose interest rate significantly exceeds the national average.. Thus the interest charged was interpreted as excessive, not the revolving credit modality.

In short, one could ask if the decision to opt for a revolving credit was correct or a credit in Creditpoly would have been preferable, in which the client knows before contracting it how much and when the credit will be paid. Also, once you are already our client, you can make your application much easier and receive the money in just 10 minutes.

Competition grows in fast credits

It is getting easier, getting quick money to face an unforeseen event, or take advantage of an opportunity. There is more to do a search on the Internet, to find a long list of websites where you can apply for a quick credit. The key is to know how to choose the best option, which will probably depend on the interest rate and the credit conditions. Generally, the amount offered by the microloan companies does not exceed 600 euros. And in many cases, this amount is reduced by half if it is the first request, and the return period is usually not greater than 30 days. It is a novel product, nonexistent in traditional banking, which has grown as a result of the crisis and the ease of access to the Internet. According to the Spanish Association of Microloans(AEMIP), the turnover of the fast loans is around 200 million euros. Even in the case of quick and easy loans, not everyone can get the money. In fact, according to the AEMIP, only 50% of applications are approved. Typically, solvency is analyzed through regular income from work  or from a pension, so that they function as a payroll advance.

The cost

The cost

The immediacy of the response and the shortness of the deadlines entail a greater risk, whose counterpart are relatively high interests. If we use the APR, usual reference in the comparison of loans, it shows values ​​higher than 4,000%. Therefore, the microloan companies strive to explain that, by their nature and terms, the APR is not a valid reference for microloans. The competitiveness of the sector is generating a  price war. Taking as a reference a loan of 300 euros, the fees at 30 days can range between 84 and 111 euros, representing interest rates between 28% and 37%. The average of the offers compared is 98.27 euros, equivalent to an interest rate of 32.76%.   

What is the profile of clients of this type of loans?

What is the profile of clients of this type of loans?

According to a study by viloan, it is a predominantly male, middle-aged and salaried public. Specifically, two out of every three people who receive their quick loans are men and the average age is 41 years. 82% of the clients work as employees, compared to 10% with a retirement pension, 5% with other benefits and 3% with self-employed workers. On average, they request a loan of 241 euros and justify an income of 1,310 euros. And as for the place of residence, Madrid and Catalonia account for 41.7% of customers. Fast loans are still a novel product in Spain and there is some distrust in consumers. Against the voices that say that there is no regulation for microloans, these are governed by the regulations on consumer credit contracts and on remote marketing of financial services for consumers. In addition, AEMIP was created two years ago, that today groups more than half of the companies in the sector. This entity has promoted the adoption of acode of good practices,  to give greater protection to customers. So fromCréditoSí we insist: if you are going to request a mini-credit, do it in a company attached to AEMIP.