Revolving credit
Revolving credit is a credit facility made available to a borrower by a lender, allowing them to draw, repay, and redraw funds up to an approved ceiling on a continuous basis. Subject to consumer credit regulations, it typically carries a high interest rate. Brokers encounter it primarily when analyzing a loan application's debt-to-income ratio, since outstanding revolving balances reduce overall borrowing capacity.
Key points
- The credit ceiling is restored progressively as repayments are made.
- Interest rates are among the highest in the consumer credit market.
- The Lagarde Act significantly strengthened pre-contractual disclosure and borrower protections.
- Any outstanding revolving balance is automatically factored into the borrower's debt-to-income calculation.
- Lenders must annually reassess the borrower's solvency and flag any over-indebtedness risk.
Frequently asked questions
Why does revolving credit affect a borrower's mortgage capacity?
When a bank analyzes a mortgage application, it accounts for all existing credit obligations, including the theoretical monthly payment tied to a revolving credit limit — even if the borrower is not fully drawing on it. This charge adds to the debt-to-income ratio and can reduce the mortgage amount approved. Paying off and canceling the revolving credit line before applying for a mortgage is often advisable.
How is revolving credit different from an authorized bank overdraft?
An authorized overdraft is a debit tolerance on a current account, typically for very short periods and small amounts. Revolving credit is a separate credit agreement formalized by a pre-contractual offer under consumer credit rules, with a defined ceiling and a contractual interest rate. Both are broadly revolving in nature, but their legal frameworks and practical uses differ significantly.
What regulatory protections do borrowers have when using revolving credit?
Since the Lagarde Act of 2010, revolving credit offers must clearly disclose the total cost of credit, the APR, and repayment terms. The lender must also offer an amortizing repayment option instead of the minimum required payment once the outstanding balance exceeds a regulatory threshold, and must check annually that the borrower's situation has not deteriorated toward an over-indebtedness risk.
In practice
A borrower applies for a mortgage to buy an apartment. Reviewing the bank statements, the broker spots two open revolving credit lines, one with an outstanding balance of €3,200. The theoretical monthly payment pushes the debt-to-income ratio above the HCSF threshold. The broker advises paying off and closing both lines before submitting the file to the bank, restoring the expected borrowing capacity.
Official sources
- Revolving credit · Service-Public.gouv.fr
- Obtaining a mortgage loan · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr