Since the implementation of the Lagarde law in 2010 on consumer credit, the revolving credit revolving is in decline, it no longer seduces the French
What is revolving credit?
Also called revolving credit or permanent credit, the revolving credit is a reserve of money available to the consumer usable in part or in full whenever he sees fit according to his needs. The advantage with this type of loan is that the borrower can quickly dispose of a certain amount of money with monthly payments and interest that will be claimed only when he uses this reserve of money. Moreover, unlike the credit allocated, this type of financing does not require proof of purchase. The disadvantage is that this reserve of money must be replenished as and when repayments with rates often higher than a traditional credit.
Current legislation provides that revolving credit must be a consumer choice. This financing must be accompanied by a detailed information sheet on the general conditions of use and an amortization schedule containing the interest rates (APR) applied, the outstanding capital and the monthly payments to be repaid.
The decline of revolving credit
In September 2009, the revolving credit amounted to € 28.5 billion in borrowings. However, with the entry into force of the Lagarde law in 2010 on consumer credit, these figures fell by a third. The crisis of 2008 helped to curb the contraction of this type of loan. The Lagarde and Hamon laws also contributed to the decline in permanent credit. Indeed, these laws prohibit the automatic renewal of a revolving loan at the end of a year of inactivity, thus giving borrowers the opportunity to terminate their contract.
These laws aimed at protecting the French also had an impact on the image of the revolving credit often associated with the word “over-indebtedness”. A rather solid reputation, because the revolving credit offers extremely high rates. In addition, the mismanagement of this type of credit is also involved, its ease of access and the lack of financial education of the French have led many of them to no longer be able to cope with repayments of their monthly payments (29% of them said they did not know how this type of credit works according to Cbanque). In 2012, Libération headlined “Revolving credit is involved in 80% of debt overhangs”.
A more reasonable use of revolving credit
After the bad buzz of the revolving credit, the French who chose to keep this system decided to use it otherwise. In 2015, the average amount used was € 223 per month, which affirms “the refocusing of the product on two functions of budget management and the financing of purchases of small repetitive amounts”, analyzed the French Association of Financial Companies (ASF).
Renewable loans accounted for only 23% of over-indebtedness cases in 2015 compared to 44% in 2011 and 35% in 2013. A proof that the Lagarde and Hamon laws have borne fruit and that the French have changed the way they consume. It would seem, therefore, that the consumer is using revolving credit less impulsively now but rather as a complementary cash flow to meet a need “just in case…”.