The “Revolving Card” credit card is basically a flexible call credit with a cash card. A certain loan amount is available, which can be repaid either in one sum or in monthly installments. Repayment in installments involves a not inconsiderable interest or cost risk in the long term.
Revolving Card credit line
The credit line of a revolving card is determined individually, is unlimited in time and is based on the income and the creditworthiness of the applicant. Since this is nothing more than a loan, credit card companies and banks check your customers very carefully before issuing a credit card with a credit line.
Repayment of the credit card balance
If you have a Revolving Card credit card with a credit line of 1500 dollars, for example, you can now use it for purchases, services and, as a rule, for cash withdrawals. It is usually billed monthly. Many credit card providers grant a payment target for settlement after receipt of the invoice, which can be up to two months. No interest is charged during this time.
After you have received the statement, you can choose with the Revolving Card whether the outstanding amount should be repaid in full ( no interest accrues) or in partial amounts (loan accrued ). When paying back in installments, you have to comply with minimum requirements, e.g. 2.00 percent of the credit card balance, but not less than 15 dollars per month. These minimum rates can vary from provider to provider.
Interest on drawn credit lines
The loan interest for Revolving Card credit cards can amount to up to 25 percent a year, depending on the provider, and is therefore very high compared to a conventional installment loan. If you fully balance the credit card balance on a monthly basis, it is no longer tragic, since no interest accrues.
Interest on cash withdrawals : Some providers advertise free cash withdrawals, but charge interest on disposals from ATMs from the day of withdrawal. With a cash withdrawal of 500 dollars and for example 18.00% eff. Annual interest is 7.50 dollars for a full month on loan interest alone!
However, if one decides to repay in partial amounts, loan interest is calculated for the open balance. Below is a calculation example for the partial payment for a revolving card. For the sake of simplicity, we expect full months.
Key data : 1,500 dollars of credit line exhausted, 18.00% lending interest pa, 2.00% of the balance / min. Monthly rate of 15 dollars
|Balance open||Minimum rate||Loan interest||pure repayment|
|1 month||$ 1,500.00||$ 30.00||-22.50 $||+ $ 7.50|
|2 months||$ 1,492.50||$ 29.85||-22.39 $||+ $ 7.46|
|3 month||$ 1,485.04||$ 29.70||-22.28 $||+ $ 7.43|
|4 month||$ 1,477.61||$ 29.55||-22.16 $||+ $ 7.39|
|5th month||$ 1,470.22||$ 29.40||-22.05 $||+ $ 7.35|
|6th month||$ 1,462.87||$ 29.26||-21.94 $||+ $ 7.31|
|7th month||$ 1,455.56||$ 29.11||-21.83 $||+ $ 7.28|
|8 months||$ 1,448.28||$ 28.97||-21.72 $||+ $ 7.24|
|9th month||$ 1,441.04||$ 28.82||-21.62 $||+ $ 7.21|
|10th month||$ 1,433.83||$ 28.68||-21.51 $||+ $ 7.17|
|11th month||$ 1,426.67||$ 28.53||-21.40 $||+ $ 7.13|
|12th month||$ 1,419.53||$ 28.39||-21.29 $||+ $ 7.10|
|total||$ 1,412.43||$ 350.26||-262.70 $||+ $ 87.57|
Calculation of installment payments summarized
After twelve months, a total of $ 350.26 was paid in installments, but only $ 87.57 of the outstanding balance was actually repaid. In this calculation, $ 262.70 of the installment payment is due solely to the calculated loan interest and only benefits the bank. If this example were to be continued now, it would take over 230 months (more than 19 years!) To fully balance the credit card balance. Provided, of course, that the revolving card’s credit line is not exhausted.
Even if the calculation is presented here in a very simplified form, one thing becomes clear: if you compare the at least required repayment with the loan interest and make no special payments, you have a very expensive long-term loan. Most of the monthly installment is on the interest itself and very little of the actual balance is being repaid.
Conclusion on the Revolving Card credit card
Even if the above explanations of this financial product do not look so good, we definitely do not want to talk bad about the credit card in the form of the Revolving Card. It represents a flexible financial reserve that can be used in an emergency. Two important points should be noted in connection with the Revolving Card:
Select credit card provider
Choose your provider wisely and take a close look at the terms and conditions, especially the small print. Not everything that is advertised as “free”, “free” or “free of charge” is actually free. Pay attention to terms of payment and interest, both for goods purchases and services and explicitly for cash withdrawals.
Use of the revolving card
In addition to choosing the right credit card provider, the use itself is also crucial. The use of the Revolving Card for expensive purchases with the idea of paying off the amount in small installments is certainly the wrong way, even if the temptation is great. An installment loan would be the better alternative here, since it does not require so much self-discipline – installment amounts and terms are fixed from the start.
Credit card overdrawn and now?
If the account of one or more credit cards is significantly overdrawn and you can hardly keep up with the installment payments or only serve the interest, you should consider rescheduling to a cheaper installment loan in this case. In the long term, this saves immense credit and interest costs. If the expensive overdraft facility on the checking account is also at risk, you should take this into account when rescheduling.