Bank loan interest, in the UK is pretty low these days compared to what it was in the past. Money is cheap to buy. The banks are the premier lenders. Then comes the financial institutions, who borrow from banks, amounts based on their loan repayments. They loan out at a higher interest rate than the bank and are allowed to borrow further funds, based on the sum of the loan repayments which they have coming incoming in. They are termed as secondary lenders. Each, lower down the line lender charges higher interest than the one above, in the chain and all of them make money from the difference in interest rates. Then come the Credit Cards.
As you will realise, those at the end of the lending chain must charge higher rates of interest. Now if a higher up the chain lender gives out Credit Cards, the intervening steps are missed. Bank to card providing the best profit and so on down the chain. But just because banks make the biggest profits they rarely charge less interest than lenders at the bottom of the chain. So 30% interest is not uncommon. The more steps missed, between bank and card, the higher the profits. Of course, if those higher up the chain, reduce their interest rate, lenders further down are squeezed and may go out of business. A sort of balance is maintained by the higher ups refusing to give a card to a borrower, because of a risk factor, regarding repayments. Thus borrowers are forced to move down the chain to get a card and of course, pay a higher interest rate.
So cards too, have a pecking order. Cards from banks being number one and so on down the chain. Again if a card giver can miss a few steps, by borrowing money to lend, the higher the profits made but the further down the chain that the card giver is, the greater the risk of repayment default.
Fair enough I hear you shout. The higher the risk, the higher that repayments should be to the card giver.
Bollox, I say!! All lenders, wherever they are in the chain and however they interact, can take out insurance policies against losses derived from borrowers defaulting. Obviously, a lower number of defaulters means a lower cost of insurance. The cost of insurance can be placed within company accounts as an expense of doing business and claimed against corporation taxes, if they pay any at all, of course.
So there you have it. There is no need for huge credit card interest rates and perhaps, if rates were lowered, people would find it easier to repay the lending. There would be less defaulting and so less to pay for insurance and possibly higher profits. The word possibly stops it happening because the card market is very fluid. People get cards and some folk never use them or use them sparingly, in emergencies only. For some reason, they would rather use all of their income to live on and then moan that they cannot live on their monthly income from their labours.
See my article on how I live on credit cards and keep my income almost intact
As you will realise, those at the end of the lending chain must charge higher rates of interest. Now if a higher up the chain lender gives out Credit Cards, the intervening steps are missed. Bank to card providing the best profit and so on down the chain. But just because banks make the biggest profits they rarely charge less interest than lenders at the bottom of the chain. So 30% interest is not uncommon. The more steps missed, between bank and card, the higher the profits. Of course, if those higher up the chain, reduce their interest rate, lenders further down are squeezed and may go out of business. A sort of balance is maintained by the higher ups refusing to give a card to a borrower, because of a risk factor, regarding repayments. Thus borrowers are forced to move down the chain to get a card and of course, pay a higher interest rate.
So cards too, have a pecking order. Cards from banks being number one and so on down the chain. Again if a card giver can miss a few steps, by borrowing money to lend, the higher the profits made but the further down the chain that the card giver is, the greater the risk of repayment default.
Fair enough I hear you shout. The higher the risk, the higher that repayments should be to the card giver.
Bollox, I say!! All lenders, wherever they are in the chain and however they interact, can take out insurance policies against losses derived from borrowers defaulting. Obviously, a lower number of defaulters means a lower cost of insurance. The cost of insurance can be placed within company accounts as an expense of doing business and claimed against corporation taxes, if they pay any at all, of course.
So there you have it. There is no need for huge credit card interest rates and perhaps, if rates were lowered, people would find it easier to repay the lending. There would be less defaulting and so less to pay for insurance and possibly higher profits. The word possibly stops it happening because the card market is very fluid. People get cards and some folk never use them or use them sparingly, in emergencies only. For some reason, they would rather use all of their income to live on and then moan that they cannot live on their monthly income from their labours.
See my article on how I live on credit cards and keep my income almost intact
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