In recent years, 'revolving' cards -a type of financial product that is characterized by offering the customer to defer the amount paid in installments- have had a spectacular media impact.
This is a type of financing that differs from other credits in that the amount used is not paid at the end of the month, but the outstanding debt is divided into installments for its return, either through a percentage of the existing debt or as a fixed fee.
The common denominator of 'revolving' cards is the high interest rates applied. Many users have been affected by this situation and that is why they have decided to claim, in most cases with success. In essence, its operation can make the product dangerous if its characteristics are not well known and the risk of over-indebtedness is not planned.
As the Bank of Spain comments in a report, the distinctive elements of these financial products reside in the fact that the debt derived from the credit is recycled every month: it is reduced with the installments made through the payment of installments, but it is increased by the use of the product itself, as well as interest, commissions and other costs that are financed jointly.
For the user, it is essential to know how to differentiate these products from traditional credit cards. The first difference is found in the associated interest rates, which are always much higher than those of 'revolving' cards,
The 'revolving' cards have very high associated interest which means that, given that the installment paid monthly is so low, the monthly payment does not repay the debt incurred and it continues to grow. An example would be that if a purchase is made for 1,000 euros on credit, in a short period of time that same amount has to be paid as interest, ”says Patricia Suárez, president of Asufin, in a report.
The numbers from the Bank of Spain show that the average annual equivalent rate (APR) for credit cards in Spain is 17.9%. However, these forecasts are quite far from what some firms charge. According to Adicae, there are more than 200 cards with an APR that reaches up to 30%. These high interests are precisely what open the door to go to court and, in fact, up to 95% of claims for 'revolving' are successful, according to Asufin.
The III Revolving Barometer of Asufin, precisely, shows a reduction in interest rates in recent months, although it is not directly reflected in the final APR (from around 22.84% in the main cards on the market), as a consequence that the emission costs are more expensive. Likewise, if the client chooses to use it to withdraw cash from an ATM, the APR reaches 27.99%, as reported by Asufin.
Another of the great risks to take into account is the form of payment of the debt. In the case of credit cards, you can pay the amount of the debt at once, or request several payments. Revolving cards, on the other hand, mean that the user is obliged to pay several installments, which entails very high interest in each of the payments made, which means that there is always an increase in the debt in each amount paid. .
In addition to what has been mentioned regarding the high interest, there is the fact that as the client repays the debt, the credit becomes available again. These two factors can cause said debt to last considerably over time, becoming a spiral.
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