What is a revolving credit? How it works and what requirements it has?
The revolving credit is a financial product that allows you to obtain an amount of money repeatedly, so that even if you spend it you can receive the replacement of your money again in your account.
The main advantage of these credits is that you do not have a limit of times to get your money, but that it is being replenished as you spend. The only limit you receive is the maximum amount limit that you can have, from there, you spend what you need and only pay the interest on the money you have used. In this sense it is a very advisable product since you are going to pay fairly just for the money you use.
What risks should you consider before hiring a revolving credit?
The revolving credit is money that you have at any time to use, without having to worry about the total balance, since it is automatically renewed as you spend in a certain period, for example, at the end of each month. But what issues should we consider before hiring revolving credit?
As for revolving credit risks, these are the ones that we must take into account:
You should check the conditions established by your financial institution before hiring revolving credit. For example, the interest rates that apply to the payment of fees, the maximum money limit that you can count on each month etc.
Most entities establish a minimum consumption of money for each month so that this product is profitable. It is a product recommended for people who need money flow, it is not a product recommended for savings or to make large purchases, but is recommended for those who need an “advance” of their salary.
It is very important to consider what you spend each month without losing sight of how much you are going to charge at the end of the month. Revolving credit can lead to indebtedness if you spend too much money, since the interest rate to be paid is also higher in these types of products.
Commissions and penalties associated with the service
It is related to the previous section, since some entities decide to charge commissions associated with the provision of the service or penalties for improper use. For example, if for a month you spend less than the minimum, the entity can penalize you for it.
Revolving credit can lead to indebtedness due to its deferred payment system, it is possible that if a month you cannot cope with the full payment of the credit used you begin to accumulate debt and each month it will be more difficult to pay since the interest rate also Will rise for the delay. The known “snowball” effect that is so dangerous in finance can occur
What advantages do these types of revolving credits have?
Regarding the positive aspects of revolving credit:
It is a double-edged sword, being a credit that is renewed every month, you have the opportunity to pay your debts every time it is renewed, however, as in all cases, a delay entails greater interest or penalties by the entity.
Ideally, keep payments up to date, so it is essential to control very well the money you spend each month taking into account the fixed expenses of your day to day and unforeseen events that may arise from time to time.
Absolute control of your spending
Once you receive your revolving credit, you will have the money at your disposal every month, always without ever exceeding the limit of the established limit. Control of your expenses you take it for what you decide when you spend it and what you spend it on.
It is a very flexible product in that sense since you have the money according to your need and you will only pay for what you need, so it is a product indicated for those who want a moderate amount every month to use throughout the month.