Loan Rates
Loan rates are generally linked to the level of risk faced by the lender - i.e. how likely they are to not get the money they have lent back.
The loan provider will charge a much higher %age to those customers who are in greatest danger of not being able to pay - called a "bad debt".
However, it can clearly be argued that this further penalises those who are in the most precarious financial situations. However, it should also act as a disincentive for those people to just spend more money carelessly.
The same applies to credit cards and you will no doubt have seen a number of offers of 29.9%. Whilst these are ludicrously expensive for most of us and should be avoided, they do represent a good way for someone with a badly damaged credit rating to repair their score. The important thing to remember in this strategy, of course, is to pay the balance IN FULL and do so EVERY MONTH as interest is not charged when the balance is cleared monthly.
Paul Carcone
Loan rates are generally linked to the level of risk faced by the lender - i.e. how likely they are to not get the money they have lent back.
The loan provider will charge a much higher %age to those customers who are in greatest danger of not being able to pay - called a "bad debt".
However, it can clearly be argued that this further penalises those who are in the most precarious financial situations. However, it should also act as a disincentive for those people to just spend more money carelessly.
The same applies to credit cards and you will no doubt have seen a number of offers of 29.9%. Whilst these are ludicrously expensive for most of us and should be avoided, they do represent a good way for someone with a badly damaged credit rating to repair their score. The important thing to remember in this strategy, of course, is to pay the balance IN FULL and do so EVERY MONTH as interest is not charged when the balance is cleared monthly.
Paul Carcone
it's quite easy if you have some experience and a little financial acumen to take a balanced view on this subject however, my 18 year old son received a glossy leaflet last December, correctly addressed to him,,offering him £500 to buy Christmas presents over a 12 month period at 300% interest.
This is not high risk lending - it's totally irresponsible and should be outlawed, the sooner the better.
The company was Provident, the same people who knock on doors offering loans to people on low incomes and benefits, another practice that need stamping out.
This is not high risk lending - it's totally irresponsible and should be outlawed, the sooner the better.
The company was Provident, the same people who knock on doors offering loans to people on low incomes and benefits, another practice that need stamping out.
You make valid points WC and I completely agree that door step selling of financial products should be made illegal as it is far too easy to prey on the vulnerable. However, how old do you have to be to have a balanced view? 18 should be old enough as you are old enough to vote, so I guess the protection would have to relate to how the products are sold and how the information is presented with clear illustration. I am sure they didn't make the 300% interest clear.
As I am sure I have said in another thread I know someone who works in a call centre for a credit card company who says there are people that do not realise that they have to pay money back on credit cards after the 0% interest promotional period is up. The point I am making is that you will never be able to make terms clear enough for everybody.
Tony
As I am sure I have said in another thread I know someone who works in a call centre for a credit card company who says there are people that do not realise that they have to pay money back on credit cards after the 0% interest promotional period is up. The point I am making is that you will never be able to make terms clear enough for everybody.
Tony
The OFT are investigating unfair lending see:
http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft1012.pdf
http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft1012.pdf
A the end of the day you are never FORCED into taking out cards with high interest rates and then spending too much on them.
I still maintain that it is the borrower who is most at fault...although I do agree that there should be some safeguards put in place for those who are truly vulnerable (the elderly, for example).
I still maintain that it is the borrower who is most at fault...although I do agree that there should be some safeguards put in place for those who are truly vulnerable (the elderly, for example).
There was a TV programme on recently about credit cards and they went out into the street and asked people what APR was, and what the true cost of spending £150 on a credit card would be if you only paid your minimum balance each time.
Everyone they spoke to could not explain APR and no one guess that the £150 would really cost more like £250 (depending on exact interest rates). Most people seemed to estimate it might be £170 or £180.
Personally I don't know what APR is exactly myself except that it is an interest rate that works a bit like a snowball - because interest is added and then the next lot of interest is calculated on the balance plus the previous interest.
I do know that credit cards are bad for you though but only from being brought up by my parents to be highly suspicious of any kind of borrowing that was not a mortgage.
Everyone they spoke to could not explain APR and no one guess that the £150 would really cost more like £250 (depending on exact interest rates). Most people seemed to estimate it might be £170 or £180.
Personally I don't know what APR is exactly myself except that it is an interest rate that works a bit like a snowball - because interest is added and then the next lot of interest is calculated on the balance plus the previous interest.
I do know that credit cards are bad for you though but only from being brought up by my parents to be highly suspicious of any kind of borrowing that was not a mortgage.
I can see both sides of the coin here. I do agree that the terms for the loan should be highlighted further and 300% is just a ridiculous figure. I am one of those who was offered a credit card by my bank when I was 18- biggest mistake I ever made as I mismanaged it completely- as Paul said the element of the fault lying with the borrower is mostly true (IMO).