Let's begin by explaining revolving facilities. A revolving facility is a credit line granted by a financial institution that can be drawn on up to its limit over a specified period of time. Revolving cards work in a similar way to credit cards: you can buy things with them and pay them off bit by bit. As you repay or“ replenish” the money, you can spend it again. The main characteristic of this type of revolving card is that you can postpone paying for your purchases without having to pay for them at the end of the month, as you would with conventional credit cards. With revolving cards, payment is made in monthly instalments, which are defined by the holder. That monthly amount covers some of the money spent and some of the interest.
The credit limit and repayment method are agreed in the card contract. Some cards allow the cardholder to choose how the monthly instalment is calculated: as a fixed amount each month or a percentage of the outstanding debt.
We will explain how each of these work:
Payment in fixed monthly instalments. The holder chooses how much they want to pay in each monthly instalment (€30, €50, etc.), although the bank normally sets a minimum amount. The instalments are charged each month until the amount spent is repaid. These instalments cover repayment of both the principal and the interest. If you continue using the credit on your card, the debt increases but the monthly instalments remain the same.
Payment in instalments of a percentage of the debt. This payment method allows you to choose the percentage of the outstanding card balance that you want to pay each month, although the bank usually sets a minimum. The instalments are charged each month until the balance is paid off. The instalments always cover some of the principal and some of the interest. In this system, the instalments reduce as the outstanding balance decreases. But the instalments increase proportionally when the card is used again. The entity is obliged to provide the customer with the following information if the balance drawn is repaid over a long period:
A planned repayment period, detailing the date on which the debt will be repaid if the card is not used again and there are no changes to the instalments. Examples of savings that would result from increasing the size of the instalments. The monthly amount that would need to be repaid to pay off the debt in one year.