What are the consequences of revolving credit card default?
It is important to know the consequences of missing a revolving credit card payment, since your bank could claim the payment of fees, interest and costs and even change the payment terms and conditions according to what has been established in the agreement.
Where can you find this information?
In the agreement.
Under section 3 (“Costs in the case of late payments”) of the pre-contractual information (Standard European Consumer Credit Information - SECCI), which details all the costs, fees, interest and other consequences arising from the failure to make a payment.
Remember that, before you take out the card, your bank is obliged to provide you with a personalised explanation of its features and alert you to the risks of default, so that you understand what the possible consequences are.
What are the costs most frequently applied by banks in the event of default?
- Debt recovery costs: your bank could charge you for the costs it incurs to recover the unpaid debt.
- Late-payment interest on overdue instalments: this rate may not exceed the nominal interest rate by more than two percentage points. Make sure that you always compare the two rates in annual terms.
- Fee for returning a direct debit from another bank account. The Banco de España considers that, according to good banking practices, this fee should not be charged, since it does not respond to an effective service.
What other consequences might you face?
A delinquency record
A change in the payment method or amount of the instalment. Sometimes, banks may change the payment method or instalment amount, if provided for in the agreement. If your chosen method is to pay at the end of the month, the bank can automatically change it to that of deferred payment, so that the unpaid amount is considered a drawdown on the credit limit granted. And if you have already chosen deferred payment as your method, the bank could change the amount to that of a minimum instalment.
These changes should be expressly provided for both in the SECC and in the agreement, and they require your prior and explicit agreement.
Bear in mind that the deferred payment method generates interest, whereas payment at the end of the month does not. Also, changing the amount to a minimum instalment could considerably lengthen the time taken to pay off the debt.
Therefore, in view of these possible situations, you should analyse the option offered (change of payment method or instalment amount) and decide if it is what you need (and, if so, expressly accept it), or whether you prefer other options, such as settling the debt or maintaining it, with all the attendant costs and consequences.