If you expect to need extra money for an extended period of time, you can opt to take out a revolving loan. For example, to pay for your child’s study. What a revolving loan is, what its specifics are and the advantages and disadvantages we have selected for you.
What is a revolving loan?
Continuous loan is also called DK by the financial world. A revolving loan is a loan, where you can withdraw the agreed maximum amount in one go, or in parts. So for example when you expect to need money, but do not know exactly how much. Or if you want to be able to cope with unforeseen expenses.
This loan form, in contrast to mortgage loan, falls into the consumer loan category. Just like a personal loan or purchase on installment. It is therefore intended for the purchase of consumer goods, such as a car, stuff for the baby room, study books or a new television.
For whom is a revolving loan convenient?
A revolving loan can be useful for people who know that they need a regular and recurring money. Consider, for example, the study of your daughter, of which you do not yet know how much you actually need. The minimum and maximum term for a revolving loan differ per lender.
Do you prefer more certainty about the term or the interest ? Then a revolving loan is less suitable for you. Or do you already know exactly what you want to spend and are you not planning to withdraw money after that? Then you might also be better off choosing another type of loan.
The loan amount with a revolving loan
Together with the lender you agree on a maximum loan amount. You can decide to withdraw the amount in one go, for example because you need everything for the construction of your new garden. Or, if you first need a part for the study of your daughter to purchase the study books, you can also record a part. With many lenders it is true that after a certain age you get a lower loan limit, so that the outstanding amount is repaid at a certain age.
The theoretical term with revolving loan
As soon as you withdraw the money, or part of it, you start paying off. The repayment amount is at least 1% of the loan amount and is calculated on the basis of a theoretical term, for example 60 months. The term is theoretical, because you can withdraw money every time until your loan limit has been reached and can be repaid in the interim.
Suppose you have a loan for € 5,000 and you have used € 2,000 of that, you can always withdraw the remaining € 3,000 at any time. Did you use the full € 5,000, but did you also pay off € 2,000 again? Then you can also withdraw the redeemed € 2,000 if you need it. So you can imagine that a revolving loan can go through a long time.
If you want to redeem the loan earlier and faster, you can opt to deposit an extra amount in addition to the monthly payment on your revolving loan. You can do this without penalty. That is not the case with all other forms of lending. So do you have a little more to spend? Then you might consider paying off some extra in the meantime.
Variable interest rates with a revolving loan
As with any loan form, you pay interest on your revolving loan. With a revolving loan the interest is always variable. This means that your interest can vary each month. You pay a fixed amount to the repayment every month, but the interest component can therefore vary monthly in terms of height. As a result, it is not possible to say in advance how long you will be willing to pay off your loan. Because with low interest rates it will go faster than with a high interest rate. You also have your own hands when you have completely repaid your loan. If you withdraw an amount over and over again, this goes slower than if you withdraw an amount once and then redeem.
The interest is determined with a revolving loan on the basis of:
- The purchase costs of the loan passed through;
- Profit margin storage;
- The risk storage;
- The maximum amount of the loan to be withdrawn;
- The amount of the loan.
If one of the above items changes in height, your lender may also change the interest. It is therefore an uncertain form of borrowing, you never know in advance what it will do. Does the interest change? Then this will be communicated to you.
Monthly amount of a revolving loan
The monthly amount of a revolving loan always consists of repayment and interest. Is the interest high? Then you pay more interest and you pay less. This ensures that the term of the repayment is also longer. And vice versa, at lower interest rates you pay less interest and your redemption part is larger.
Benefits of a revolving loan
If in certain situations you occasionally need some extra money, a revolving loan can be useful. The other benefits:
- It is flexible, because you do not have to include the entire amount of loan in one go and you can also re-enter the redeemed part.
- You only pay interest on the part you have recorded, so not on the entire amount if you did not include it.
- If you no longer want loan, you can always repay the revolving loan free of charge in one go or in parts.
Disadvantages of a revolving loan
Every advantage also has its disadvantage. It is wise to keep this in mind also, if you plan to take out a revolving loan.
- Many people never complete a continuous loan. It is very tempting to constantly have extra money at your disposal. People often take back the redeemed amount or part of it later.
- You do not know exactly in advance how long you are paying off, because of the varying interest rate, the amount that you pay off monthly varies. The higher the interest rate, the smaller the monthly repayment part.
- You can not deduct the interest from the tax, as opposed to the interest on a personal loan, under certain conditions.
For people who prefer security on a loan, a revolving loan is not so suitable.
Pay a revolving loan
If you have paid the remaining outstanding amount of the revolving loan and will no longer use it in the future, you must cancel the revolving loan. You do this in writing, also mention your contract number. You will then receive a confirmation and an overview of the interest paid for the current year. The interest still due is automatically debited and the loan is canceled at the BKR .
What happens in case of death and the outstanding debt of the revolving loan?
You probably do not want to think about it, but what happens to your outstanding debt of your revolving loan when you die? You do not want your children to be the victim of it. It differs per loan provider how it is handled. For example, there is the possibility to take out a ‘Survivor protection’ via your intermediary. The survivors are then, under certain conditions, protected against your outstanding debt. The maximum amount that is waived is fixed, so it may be that your survivors still have to pay an amount. These options do not apply to all lenders, so it is always good to be informed before you close the loan.
The survivors must always report the death to the lender. The lender is a loanor after the death. This may not recover the debts within the first 3 months. That is regulated by law. For example, your children or partner will not be ‘bothered’ by the lender with the amount still to be paid.
Insight into your revolving loan
With a revolving loan you can quickly lose the overview. How many have you already included, how much have you already paid off and how much can you still withdraw? Fortunately, you receive an overview every month or quarter, depending on your provider. This indicates the loan margin, the total interest paid over the current year, the paid monthly installments, interest and the outstanding balance. And when the year is over, you get an overview in the new year of your total interest paid for the year.
Convert your ongoing loan
A high interest rate often applies to many revolving loans. Do you want to make sure you pay a lower interest rate on your loan? Our financial assistants from the current loans / loans department are happy to help you to see if you can save. That way they can convert the loan for you into a loan with lower interest rates. They can also provide you with expert advice, so you know that it is well organized!