5 ms·

25% interest rate should not even legal in the first place. Do banks offer consumers 25% on savings interest? Not even close.

by snorkel 17y ago

philwelch 17y ago
At that point, the credit becomes a risky investment--a significant percentage of people paying 25% interest will never repay their debts. If there isn't any return on the ones that do, then these people will just get outright blacklisted from credit. (Maybe that's a good thing.) If you bought junk bonds backed by high-interest consumer debt, you'd get a high interest rate too. Unless you got nothing. But you're probably a safer investor than Bank of America. It's also a bargaining tactic for when these people finally wisen up and renegotiate their debts through a consolidation agency.
joshfinnie 17y ago
I agree, there should be a set limit that people can charge. It can be fixed to the fed's rate, but no more than 10%. There is no reason I should be making 0.0025% on my savings but being charges 19.5% on my credit.
- chollida1 17y ago
  > There is no reason I should be making 0.0025% on my savings but being charges 19.5% on my credit. Technically there is a good reason. You make so little interest on your savings because you are lending money to the bank, which means due to the banks credit rating and CIDC insurance that you are very unlikely to loose your money. When the bank loans money to you via your credit card, they are taking a much much larger gamble. If you go bankrupt there is no CDIC insurance to protect them and give them their money back. Hence the higher interest rate. How big should the spread be? That's an entirely different question:) The
- jrockway 17y ago
  Nobody is forcing you to pay 19.5% interest. My rate is lower than that, but I never carry a balance, making my rate 0 (but with all the conveniences of a credit card). If I overspend, which sometimes happens, then I pay for it out of savings. That money is doing anything for me (1.5% interest, or whatever), so I might as well pay off the credit card with it.
superjared 17y ago
Usury laws have been around for hundreds of years. Why the hell don't we (the USA) have them anymore? http://en.wikipedia.org/wiki/Usury http://en.wikipedia.org/wiki/Usury
- ryanwaggoner 17y ago
  Usury doesn't mean that high-risk debtors will have access to credit with reasonable interest rates; it means they won't have access to credit at all. If you're in a situation where your best option is to take a 25% loan to pay for bills, that's a truly shitty situation, but how can it be improved by taking that option (which we just agreed was your best option) off the table? Some of my thinking on this subject was the result of this excellent thread on payday lenders: http://news.ycombinator.com/item?id=543086 http://news.ycombinator.com/item?id=543086
  - aarongough 17y ago
    From personal experience with some people very close to me I believe that it is actually better not to have the option to borrow at 25%. All it means is that they are able to live outside their means until they can no longer pay the minimum payment on their credit card, and at that point they are in deep trouble. I firmly believe that the banks are too predatory these days. If a particular person is deemed too much of a risk to lend to then they should not be lent money. How is it a better idea to lend them money at a higher interest rate? All it does is (possibly)make more money for the bank and forces the rest of us to offset the risk in the form of higher interest rates.
    - tjic 17y ago
      > I believe that it is actually better not to have the option to borrow at 25%. I can think of thousands of reasons why I'd like to have that option. On example: My dog gets hit by a car and it will cost $4k to save her life. I have an extra $1k in my budget each month, but only $500 in cash reserves. I'd pay 200% annual interest. If I lived in a paternalistic "aarongough knows best" society, my dog would die. Please don't be so quick to imagine that your preferences and resources (parents, friends with money, etc.) apply to everyone else.
krschultz 17y ago
When banks give loans to consumers in the form of credit cards, they charge 25% interest because it is really risky - note the 12.5% default rate mentioned in the article. When consumers gives banks loans in the form of deposits, they get very little interest because it is so safe - with the FDIC around what tiny percent of deposits have been lost to consumers in the last 50 years?

25% interest rate should not even legal in the first place. Do banks offer consumers 25% on savings interest? Not even close.

by snorkel 17y ago

25% interest rate should not even legal in the first place. Do banks offer consumers 25% on savings interest? Not even close.

philwelch 17y ago

At that point, the credit becomes a risky investment--a significant percentage of people paying 25% interest will never repay their debts. If there isn't any return on the ones that do, then these people will just get outright blacklisted from credit. (Maybe that's a good thing.) If you bought junk bonds backed by high-interest consumer debt, you'd get a high interest rate too. Unless you got nothing. But you're probably a safer investor than Bank of America. It's also a bargaining tactic for when these people finally wisen up and renegotiate their debts through a consolidation agency.

joshfinnie 17y ago

I agree, there should be a set limit that people can charge. It can be fixed to the fed's rate, but no more than 10%. There is no reason I should be making 0.0025% on my savings but being charges 19.5% on my credit.

chollida1 17y ago
> There is no reason I should be making 0.0025% on my savings but being charges 19.5% on my credit. Technically there is a good reason. You make so little interest on your savings because you are lending money to the bank, which means due to the banks credit rating and CIDC insurance that you are very unlikely to loose your money. When the bank loans money to you via your credit card, they are taking a much much larger gamble. If you go bankrupt there is no CDIC insurance to protect them and give them their money back. Hence the higher interest rate. How big should the spread be? That's an entirely different question:) The
jrockway 17y ago
Nobody is forcing you to pay 19.5% interest. My rate is lower than that, but I never carry a balance, making my rate 0 (but with all the conveniences of a credit card). If I overspend, which sometimes happens, then I pay for it out of savings. That money is doing anything for me (1.5% interest, or whatever), so I might as well pay off the credit card with it.

superjared 17y ago

Usury laws have been around for hundreds of years. Why the hell don't we (the USA) have them anymore? http://en.wikipedia.org/wiki/Usury http://en.wikipedia.org/wiki/Usury

ryanwaggoner 17y ago
Usury doesn't mean that high-risk debtors will have access to credit with reasonable interest rates; it means they won't have access to credit at all. If you're in a situation where your best option is to take a 25% loan to pay for bills, that's a truly shitty situation, but how can it be improved by taking that option (which we just agreed was your best option) off the table? Some of my thinking on this subject was the result of this excellent thread on payday lenders: http://news.ycombinator.com/item?id=543086 http://news.ycombinator.com/item?id=543086
- aarongough 17y ago
  From personal experience with some people very close to me I believe that it is actually better not to have the option to borrow at 25%. All it means is that they are able to live outside their means until they can no longer pay the minimum payment on their credit card, and at that point they are in deep trouble. I firmly believe that the banks are too predatory these days. If a particular person is deemed too much of a risk to lend to then they should not be lent money. How is it a better idea to lend them money at a higher interest rate? All it does is (possibly)make more money for the bank and forces the rest of us to offset the risk in the form of higher interest rates.
  - tjic 17y ago
    > I believe that it is actually better not to have the option to borrow at 25%. I can think of thousands of reasons why I'd like to have that option. On example: My dog gets hit by a car and it will cost $4k to save her life. I have an extra $1k in my budget each month, but only $500 in cash reserves. I'd pay 200% annual interest. If I lived in a paternalistic "aarongough knows best" society, my dog would die. Please don't be so quick to imagine that your preferences and resources (parents, friends with money, etc.) apply to everyone else.

krschultz 17y ago

When banks give loans to consumers in the form of credit cards, they charge 25% interest because it is really risky - note the 12.5% default rate mentioned in the article. When consumers gives banks loans in the form of deposits, they get very little interest because it is so safe - with the FDIC around what tiny percent of deposits have been lost to consumers in the last 50 years?