This sudden surge in demand is due to a recent change imposed by the Central Bank. Now the way banks and credit card operators must handle revolving credit rates has changed. It seems difficult? It is not! Let Will Ladislaw explain what all this means.
What is credit card revolving?
Imagine the revolving as a kind of emergency loan. Consider the following situation: In a particular month with many expenses, you cannot pay the entire credit card bill at maturity. So you decide to pay off only the minimum amount – which is from 15% of the account. The difference between the amount paid and the total invoice amount is automatically posted to the following month with interest. Then it can be paid in cash or in installments.
It is like a good faith act of your card operator. He understands that you can’t pay everything now, but you want to pay your debts as soon as possible. In the meantime, as you try to re-establish yourself financially by paying the minimum fee, your name doesn’t get dirty. Less complication for you.
Of course the bank and credit card companies cannot trust that all their customers will pay the revolving payment on time. Therefore, in order to know whether or not the customer can use this service, a prior credit analysis is made and a limit compatible with each client’s income is pre-approved. That way both sides win.
But there was a stone in the middle of the rotary: interest. By not paying the full credit card bill, customers were subject to the highest rate on the market – 486.8% per annum in January. In addition, the debt was cumulative: interest bounced on interest every month, costing it and requiring a great deal of financial planning from the client.
How do new rotary rate rules change my life?
On April 3, the Central Bank announced some new rules for revolving credit, aimed at further helping consumers. Now each customer can spend only 30 days on revolving credit, eliminating the snowball effect of interest. After this period, anyone who is unable to pay the debt related to the card statement should be referred to options with more favorable conditions or installment debt. This way, each client will be able to pay the debt with lower terms and interest.
This is also very good for the market as it should greatly reduce the number of indebted people. The default rate on the revolving sector was 36.1% in January. More than a third of applicants were in red, which should decrease with the new rule.
Ideally, pay the bill on time or look for other personal credit options than revolving. At least now there are less chances of creating even greater debt. Avoid the rotary!