Greetings friends! TGIF!!! I have spent the majority of my time today with a class full of rambunctious 3rd graders. Needless to say, it’s been a very interesting one
. But now I have a quick little Q & A that I would like for you to participate in. Let me give you the details.
Over the next few days here on Personal Finance Notebook, I’ll be exploring the topic of “interest rates” and why they are low for some and extremely high for others. I know we all want to default to the fact that those who get stuck with the high rates are the one’s that don’t pay their bills, but there are additional factors to consider as well.
I’ve identified a few reasons that I’ll be communicating later, but I do want to open the floor for everyone to list their own. This is a community of learning and sharing any ideas related to Personal Finance.
I would like to use a few quotes from your comments so be sure to include your name and web address (if you have one) in the appropriate areas of the comment section.
So, here’s the question again: “Why Do You Think We Pay High Interest Rates?” – You may give specific factors used to determine a consumers interest rate. Keep this in mind: You can have an excellent pay history and still be offered a crappy rate. Why?
No answer is too simple or too complicated. I look forward to reading what you have to say about the subject and sharing my ideas within the next week or so. Be sure you are subscribed to Personal Finance Notebook by RSS or Email to receive the articles posted in the coming series.
Thank you in advance for participating!
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If you have a financial question you would like answered in the “Ask Personal Finance Notebook…” Series, please feel free to do so by clicking on this link: “Ask A Question”. Education and knowledge about money is power so don’t forget to pass this message on to your friends. I appreciate you for your support and I send you lots of love!
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Well one reason is because we don’t know any better. I have a client that had a credit card with an interest rate way too high. The man had a net worth of over 1/2 million dollars. He paid his credit card balance off most of the time. He just never knew he could call the bank and request that it be lowered. I told him there is no way you should be paying those rates. You do not have, because you do not ask. Like it says in James 4:2 “You want something but don’t get it. You kill and covet, but you cannot have what you want. You quarrel and fight. You do not have, because you do not ask God.” (NIV)
Coming from the mortgage industry, I saw that happen ALL the time. Thanks for the comment Gina! Great scripture, I’m going to write it down for future reference:-).
It depends what you’re borrowing against. If you borrow using your credit card, realize that you’re expecting a lender to make an unsecured loan–a loan that has nothing but air and a promise behind it.
But if you borrow against your house, you can get a 30 year fixed mortgage for just over 5% right now. That’s an extremely attractive rate. If you borrow to buy a car, you can find similar rates, and even the occasional 0% rate.
Think about the nature of the loan your lender is making and use that to your advantage when you look for loans and terms.
Dan @ Casual Kitchen
Thanks Dan. Considering the type of loan and comparing rates is definitely a must.
Besides your own credit history, interest rates fluctuate with the economy and status of the Federal Reserve Bank to some extent.
Great point! Thanks Lakita.
I’m taking a slightly different view of your question, but it’s what popped into my head when I saw the question. We pay high interest rates because we cannot wait. We must have everything and we must have it now. The alternative to a high interest rate is no interest rate at all, by paying cash for our transactions. I’m not sure that’s the direction you were headed with the question, but I think it’s the real root of the situation.
Love it! This is definitely a solution. We really don’t have to accept rates at all. If we just simply use – cash. Great point!
I am loving all of the ideas presented so far. Great conversation
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Okay, my guess is that a higher interest rate may be affected by how much credit we have available and on hand, and how often we use it.
So, if I have 5 credit cards with high limits, that I use frequently, even though I pay the bills on time, I may receive higher interest rate on a newer credit line because of the risk that I could easily go into debt and default on my payments… ???
Great “guess” Susan:-). This one is often overlooked by consumers, but it is a major factor when determining approval for credit. Thanks for the comment!
I was right?!?!?!
Oh, how I love being right.
I would say that we pay interest rate because it is a profit making opportunity for the company lol. Those answers that were given are very good especially the one from Susan Liddy very informative indeed.
LOL, I would have to agree. Now that I think about it, a great example of that would be payday loans. Their profits are HUGE and they are popping up all over the place. Hmmm…I may need to reconsider my profession (just kidding). Thanks so much for the comment:-).