Sometimes when you want to have fun or an unforeseen occasion causes an urgent need for money, some people prefer to have capital rather than to draw on their savings.
The opening of credit, also called revolving credit is a flexible and flexible form of credit consisting in making available to the borrower a sum of reusable money as and when repaid. And this, in order to finance non-predefined purchases and projects. The amounts loaned are often lower than for personal loans.
There are no restrictions on the use of this credit. The borrower is free to use it as he sees fit, he can make his withdrawals in various forms (cash withdrawal, transfer from an account, direct purchase using a card, etc.)
How it works ?
The money reserve is a very special consumer credit since this reserve is replenished as repayments are made and it is possible to borrow again the available part of the reserve granted. This type of loan is often accompanied by a credit card (or acquisition card) and allows you to have at your disposal a permanent financial resource.
The amount borrowed is based on income, other outstanding credits and the amount is calculated according to the debt ratio, and the remainder of the borrower’s living.
Interest is deducted from the sums remaining due at the end of each month. If no part has been taken from the reserve, no interest is due. Interest rates are often higher, vary according to banks and lending organizations, this can become a factor of over-indebtedness if you lose control. Regardless of the amount withdrawn and the use made of it, the borrower is guaranteed to pay the same amount each month.
Very often, credit institutions allow the reserve used to be reimbursed more or less quickly by varying the amount of the monthly payments (plus interest), while taking into account a minimum decided according to the conditions agreed (at least interest). Certain types of credit facilities only provide for regular payment of interest, the capital being required at the end of the contract.
However, to avoid a risk of permanent debt, Belgian law obliges the borrower to repay the entire loan within a certain period without terminating the contract: this is zero.
The law which regulates consumer credit provides for maximum zeroing periods which vary according to the amount borrowed (from one to five years) and the lender is required to warn the consumer beforehand. Once the credit has returned to zero, it can again draw down.
Proper use of credit: a few tips
The success of revolving credit rests on a significant demand for credits of small amounts. In most cases, the majority of consumers are creditworthy and aware of the commitment made.
The most important thing is to remember that we have on hand a sum of money that does not belong to us and that we will have to repay with interest! It is easy to lose the notion of your purchasing power and your ability to repay, to make impulse purchases.
It is therefore advisable to be well informed before embarking on a credit opening and to remember that borrowing money also costs money!
If this formula has the advantage of being flexible, it is generally expensive and can constitute a dangerous incentive to overconsumption, even to over-indebtedness and therefore requires very good management of your account. It is recommended to take out loss of employment or income insurance which will take over in the event of economic difficulties.
The opening of credit is often accompanied by a card or a payment instrument which makes it possible to draw credit. It’s easy because you can pay everywhere and withdraw cash. Be careful in this case, interest as well as additional costs will be counted on the sums withdrawn. The danger is that one is in debt longer than with an ordinary loan.
It is often difficult to estimate the exact total cost of the loan, the calculations to be carried out being often complicated: various costs, higher card contribution, higher rate, etc. In addition, because of the feeling of freedom that this opening of credit gives, one is more often tempted to borrow again. It should only be used as a last resort and not in place of conventional funding.
The choice of this type of credit depends on your goal: if the help you need remains punctual, for small expenses, purchases really essential, or when you do not know how to do otherwise, the opening of credit is very useful.
The opening of credit is suitable if you control your budget, that you have regular and sufficient income, but you must however avoid using it too frequently. However, it is a good alternative in the event of the unexpected and if it is used correctly.
It is however essential to request several offers and compare them. Using online simulation sites (“ready-to-temperament.be” for example) will help to make a wise and informed choice before committing to such credit.
It is advisable to negotiate the conditions for the opening of credit along two main axes: either the interest rate if you intend to use the credit card associated with the money reserve often; or the membership fee of the card (which can be free under certain conditions) if you intend to use it only in an emergency or exceptionally.
No credit opening if the borrower is already too indebted or with recurring difficulties! It would only make things worse. A credit commits you, check your repayment capacity before you commit