Revolving cards: what are they, how do they work and what are their risks | My money

The revolving cards They are a type of credit card offered by banks, but with certain peculiarities that make them a complex and sometimes controversial product. It is essential to understand them well to avoid risks, especially that of over-indebtedness. Consumer associations urge you to use them wisely and to complain if you have not been properly informed about the product.

What are they and why is their operation controversial?

The ‘revolving’ mode allows you to postpone and split payments for purchases made. However, instead of passing the charge to the past month as in a credit card (in the debit card it is passed in cash), the payment is made in monthly installments that generate interest. They work as a kind of mini-credit, but sometimes the client is unaware that the fractioning of the payments carries high interest. In addition, they can be used regardless of whether funds are available or not in the associated account, since the bank grants a credit limit (the average amount is usually between 5,000 and 6,000 euros), but the money has to be returned later in installments and with interest.

How much is the interest?

Some financial entities that issue this type of card apply very high interest rates, which are around 20% and in some cases exceed 25% APR. The ruling of the Supreme Court of March 4, 2020 considered usury a ‘revolving’ card with an APR of 27% APR and agreed to its nullity. They are much higher interest compared to the average for consumer loans, which is around 7%. According to Adicae, there are about 200 models of cards that are susceptible to include the option of ‘revolving’ that reach interests of up to 30% considered abusive. Javier Moyano, CEO of Reclama Por Mí, assures that “from the sentence, many entities have decided to lower the interest rate in order to avoid litigation, but it has not served them to avoid sentences against having applied at another time an interest rate considered usurious ”.

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Are there limits to APRs?

No. As Moyano indicates, “there is no express limit to usury, that is, there is no limit on the interest rate to be applied to this type of loan.” The ‘revolving’ cards are not illegal, but, according to the aforementioned Supreme Court ruling, it is considered that there is usury when an interest significantly higher than the normal money is applied, which in terms of APR interest is usually considered 20%, and also is believes it is excessive or disproportionate. But it is not a rule or norm, but what jurisprudence tends to consider as a very high interest rate.

Are only interests the problem?

No. One of the biggest dangers is that, as the debt is repaid, that amount is available again in the line of credit to spend. Repayment of payments can be made in two ways: either in fixed monthly installments or by paying a percentage of the debt. For example, if a percentage of 5% is applied, then each month 5% of the debt accumulated at that time will be paid. Likewise, one of its peculiarities is that the debt is recalculated every month. In other words, the debit balance decreases if the fee is paid, but increases as the card continues to be used.

What are the consequences of its use?

On the one hand, if a low monthly installment is paid, the amortization of the principal is lengthened and therefore the interests are also lengthened: in the end the operation is much more expensive. On the other hand, it is not possible to issue a previous amortization table; As the debt varies, the monthly installments change and surprises appear. “If we do not calculate the amount well, it is possible that small amounts of money financed for a long time will be returned, generating huge amounts of interest,” they point out from HelpMyCash.

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Are there regulations in this regard?

Revolving cards are a complex financial instrument that in extreme cases can lead to insolvency. This type of card has been in the crosshairs of consumer associations since 2015 due to the dangers of over-indebtedness they pose. Last January, the new regulation on revolving cards came into force, which seeks to give greater clarity and transparency to the commercialization of this type of financial products. Banking entities are required to carry out a prior study of the client’s solvency and the obligation to provide not only pre-contractual information (contracts formalized after entry into force) but also quarterly and additional periodic information.

Can it be claimed?

Yes. Javier Moyano affirms that, although the entities have reduced the APR, it is possible to always claim. “Even if the debt was paid years ago, you can always claim what was overcharged because we understand that the action for annulment of an abusive clause does not prescribe.” If the card is annulled, it would mean the restitution of 100% of interest and commissions generated during the entire life of the credit and the cancellation of the contract, he assures. It points out that the largest number of claims for Reclama Por Me ‘revolving cards is against Wizink, which has applied an APR between 25% and 28% APR until the sentence. Now he has reduced it to avoid new claims on new contracts.

How to avoid scares?

It is advisable to have control of all purchases and use the card only in specific cases. It is best to pay off the debt as soon as possible without prolonging the repayment to the maximum.

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