The Banks representative revolving loans are here! Banks will be obliged to provide their customers with representative examples in revolving loans: here is what you need to know about the new rule, which comes into force in October.

A perpetual debt, a financial hole that, no matter how much effort is made to plug, grows hopelessly to endanger the financial stability of the entire family.

For years, this is what many users of what is known as revolving credits have felt they had, a type of loan in which there is no set number of fixed instalments to return the money to the bank.

Usually associated with credit cards, they simply narrow the margin of the amount that can be used as they are being used and increase it as the customer is returning the money.

So far, nothing too novel: in principle it was simply a more flexible way of financing expenses. At least, that is how they started to be marketed.

Banks representative revolving loans

But behind the cards... there was more, much more, stirring.

So much so that in recent years the Supreme Court, as El Correo Gallego reported, has had to pronounce itself at least a couple of times to declare its nullity.

He did this when the High Court understood that the flexibility of revolving hid some leonine conditions for its users.

These, the Supreme Court ended up ruling, were closer to usury than to an honest banking practice, forcing the judges to resort to a law from the beginning of the twentieth century to sanction the practice.

Among many other warning signs, the clients then denounced, the revolving commissions often exceeded 20% of the Annual Equivalent Rate (APR), that is, the amount of more that must be returned to the bank after a year.

Banks representative revolving loans idea

To get an idea of what such a rate implies, it is enough to remember, for example, that the most generous banks offer to open payroll accounts with them a return of about 5% APR, four times less.

To this we must add that in 2021, according to the Banco de España itself, while the average profitability for consumer credit banks went to 7.52% APR, the average profitability of credit cards and revolving cards went to 18.02%.

Opacity has contributed decisively to this. For years, many banks explained half-heartedly, quickly, and poorly what revolving really meant, a financial product of some complexity that should not be used if you do not have certain economic knowledge.

These, in addition, put all kinds of obstacles so that customers could know exactly how much they owed.

Banks representative revolving loans revealed

For this reason, year after year, many clients were forced to pay the interest on a debt whose origin was not entirely clear to them and whose amount, month after month, only grew rapidly without them knowing it.

The issue, finally, has forced the Banco de España itself to act on the matter, which at the beginning of this month April published in the BOE a circular in which it tightened the obligations of financial institutions with respect to this type of loans.

These have been summarized black on white in a publication of the Bank of Spain's own blog, which has recalled on the other hand that they will not enter into force until next October 6.

Among the new obligations of banks with respect to revolving stands out that of having to provide customers with representative examples.

This means that those who want to sell a revolving credit will no longer be able to make the customer dizzy with the usual dance of percentages. Rather, they will have to talk to you about amounts of hard and hard money, how much money they will receive from the bank and how much they will have to return.

In principle, says the Bank of Spain, the amount on which they will have to put such examples will have a limit of about 1,500 euros. This, unless the client expressly requests to be able to make the calculations with other amounts.

The new limits on revolving do not end here.

When the credit agreement includes two or more types of deferred payment with interest and at least one of them is revolving, the bank must include an example of financing for each type.

In addition, the word revolving will be expressly indicated in the deferred payment formulas through flexible periodic instalments.

On the other hand, the entity must send periodic communications that include examples of savings scenarios.

This means that if the money returned to the bank is less than 25% of the credit limit, the entity must provide information on how much money the client will be able to save in case of immediately paying 20% of the loan, half, and all of it.

In other words, the client should always know how much he can save if he cancels his debt or a good part of it immediately, as well as the date on which he would stop paying in each scenario. No infinite holes: the revolving already has a limit.

# Banks representative revolving loans #