June 17, 2021

Guide not to get into debt with revolving cards | My rights



The revolving It is a financial product that, if its operation is not well understood, can cause problems due to improper use. More than a type of card, it is a type of credit, however, most of the banks that market the revolving they generally associate it with a card, either physical or virtual.

This financial product, instead of paying monthly as in a credit card or in cash as in a debit card, purchases are paid in installments by applying interest. Although they have card format, it is implemented as a consumer credit.

They are usually small loans, with high interests and that are returned in small monthly installments. Therefore, be aware that deferring card payments revolving means to activate a credit.

As the customer makes purchases with these cards, the agreed credit runs out. When the user makes refunds through the fees, he will reimburse the balance and thereby increase the available capital.

What are their characteristics?

These cards allow you to make purchases regardless of the level of liquidity. It is like having a balance in a consumer credit but that is instrumentalized through the card revolving.

It is a type of credit that allows users to defer payments in two ways: through fixed installments or by returning a percentage of the credit or the balance provided.

Through the percentage return, users will have to pay a fixed percentage of the debit balance each month. A minimum and maximum percentage is usually applied, which can range between 5 and 25%. If the applied percentage is 5%, it implies that the user will have to return each month 5% of the debt that they have accumulated at that time.

Through repayment by installments, the bank’s clients pay a fixed monthly installment until their debt is fully paid off. A range of minimum and maximum payments can be established.

In both forms, the available limit is renewed with the part of the quota destined to amortize the capital already spent. It allows making payments regardless of whether or not funds are available in the associated account.

How are they marketed?

Financial entities offer this product to their customers, generally, with the generic name of a credit card or with a commercial name. They are marketed, in many cases, without the word revolving and unfortunately without properly informing about the characteristics of this type of associated credit. They can also be offered in collaboration with large businesses or intermediaries, under their trademark.

What do users have to know?

To avoid scares with these credit cards, before hiring them you have to ask the bank or savings bank for information about the payment methods it offers. Also if the payment method is predetermined or the user can choose between different options before hiring.

It is advisable to know if once the card has been contracted there is the option of modifying the payment method or the chosen fee and, if so, how to do it.

It is crucial, to avoid scares and conflicts, to know the interest rate and the APR applied in the deferred payment method.

What type of interest do they offer?

Despite the fact that the interest rates of the revolving have been adjusted downward after the Supreme Court ruling that in 2020 26% of a WiZink card was labeled “usury”, the final interest or APR remains above 22%, with an average of 22.84% during 2021 , according to the III Barometer of the Association of Financial Users (ASUFIN). This maintenance of high interest rates is due to the issuance costs that are associated with it.

What do the courts say?

It should be remembered that the Supreme Court has branded as “disproportionate and usurious” the interest of a revolving 27% of WiZink in application of the Usury law, also known as the Azcárate law, a 1908 rule that is still in force in our legal system and allows us to challenge usurious or abusive credits.

The courts have also questioned some banking practices for their commercialization, such as highlighting in their brochures and contracts very clearly that the issuance of the card revolving It is free, but at the same time the associated interests were shown in a very non-transparent way, in many cases using a practically illegible letter on the back of the contract or deliberately complicated phrases to make it difficult to understand.

Beware of small fees

The smaller the fee, the longer and more interest is being paid. Taking advantage of an excessively low fee will only cover interest, expenses and a very small part of the borrowed capital. You can run the risk of debt becoming perpetual to cover interest and no principal. There is a Bank of Spain simulator that helps citizens to discard small fees.

Can the bank change the conditions of the ‘revolving’?

Financial entities can modify the conditions of the card contract with the condition of communicating it to the user at least two months in advance before it comes into force, so that the debtor accepts or rejects them before their application. If it is not answered, it is considered as an acceptance.

Be careful because some financial institutions establish in the contract the possibility of modifying the payment method or the credit limit. This could lead the citizen to a situation of over-indebtedness when the payment method is postponed and the installment is mainly used to pay interest and expenses, with hardly any capital amortization.

And change the interest rate?

Banks can modify the interest rate of the credit, provided that it has been agreed in writing and advising the user that they can give their express consent for the new interest rate to be applied not only to the new provisions but also to outstanding debt with origin in the deferred payment of the previous provisions.

The user can also choose to reject the new interest rate for the outstanding debt, the entity being able to proceed to block and cancel the physical card, and the outstanding debt remains with the conditions in force until that moment.

Should I take out protection insurance?

These products cover non-payment due to circumstances such as unemployment, but they have a very high cost when applied monthly on disposed balances. The result is –according to ASUFIN- that for a debt of only 1,000 euros to be repaid in two years, the cost of the protection insurance rises up to more than 10% on the same operation without insurance, becoming a significant extra cost.

Caution with commercial calls

If the bank calls to encourage the user to have that credit once, crediting it to the account, it is necessary to assess if this money is really needed, if the conditions are satisfactory and, above all, if it involves activating the modality revolving.

It is essential to ask about the APR and not feel pressured, better decide the advantages of this product calmly.

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