Revolving Credit Loans

What is meant by a revolving credit loan?

Revolving credit programs do not have a fixed number of payments. Examples of revolving credit products used by consumers include credit cards, lines-of-credit and home equity lines-of-credit. Typical characteristics of revolving credit products include: * The borrower may use or withdraw funds up to a pre-approved credit limit. * The amount of credit available can increase or decrease as the loan is borrowed and repaid. * Typically, the loan is used repeatedly. * The payments are made on the amount of money borrowed and repaid plus interest owed. * The borrower may repay over time (subject to payment requirements) or in full at any time.

Who needs a revolving credit loan?

Most Americans would have trouble imagining life without a credit card. In fact, the average American has four credit cards with access to approximately $19,000 in credit lines. It is difficult to obtain a hotel room or a rental car without a credit card. For young adults, a credit card is viewed as a rite of passage into the world of credit – buying without the cash on hand. One in three high school seniors carries a credit card, according to a Filene Research Institute report.

Why should credit unions care?

Credit cards are not considered a core product by credit unions and in fact, represent only 5% of a credit union’s loan portfolio. However, credit cards are viewed as a necessary product by almost half of credit unions, in order to retain member loyalty and obtain other deposit and loan business from members. Although the new Credit C.A.R.D. Act will restrict some of the abusive practices of issuers, credit unions for the most part have offered responsible credit products without excessive fees and interest rates.

What can credit unions do?

Credit unions generally view themselves as being in the business of educating members about the wise use of credit. Many are willing to help members with no or blemished credit histories learn to responsibly manage credit, including revolving credit. Youth and low-income Americans are often targets of high-cost credit card programs. Credit unions can offer alternative credit card products and lines-of-credit to these consumers to help them achieve sound financial management.