0% APR for Jack, Fees and High Rates for Zach?

By ccflyers on May 21, 2008

You know that people with good and excellent credit are eligible for the best credit card deals with low interests and great rewards. While customers with a credit that needs some improvement or those with no credit sometimes have to bend over backwards to qualify for a credit card with a decent interest rate and a moderate annual fee.

This is fair to some extent. No doubt that people with good credit history didn’t get it like manna from heaven. They have worked hard to build a strong credit. And the banks’ policy is also quite clear. They prefer to deal with loyal, prosperous and creditworthy customers with good credit. Such clients roll in lenders’ good graces.

As for bad or no credit owners, credit card issuers are not so merciful and generous. People who can qualify for poor credit cards only are a bad risk for creditors. And credit issuers need to make up for this risk somehow. High fees and rates are a good compensation. It is just one of the credit card market’s laws. Creditors make profit from their customers. But why then the unbeneficial for lenders 0% APR credit cards exist? Where is the profit?

I’ll start with a short flashback. In 2002, 2003 when the Fed rates were the lowest, many credit card issuers offered 0% interest cards to different customers. The qualifying standards were not that stern as they are now. But even back then the question “How do creditors profit from this type of deals?” lingered on card holders’ minds. The scheme is pretty simple, in fact.

Creditors have enough of other sources of revenue to compensate for the side effects of issuing low interest credit cards.

Annual Fees

Five years ago most 0% APR credit card owners had to pay an annual fee for the privilege of using such a plastic. The fee ranged from $15 to $20, as a rule. These days, however, most 0% intro interest deals are not applied an annual fee.

Late Fees

You can benefit of your credit card with 0% APR till you are accurate with your monthly credit card payments. Once you are late with your payment, a creditor imposes a late payment fee, usually from $19 to $39.

Default Rate

It is not even the late payment fee itself that can shake your financial standing, but it is the default rate that can be triggered by being late with paying your monthly bills. Learn punctuality with your credit card payments, otherwise, kiss a good-bye to your 0% rate and welcome new doubled interests on both, existing balances and new charges.

So, annual and penalty fees, as well as default rates – that is how credit card companies make up for the unprofitability of the 0% APR credit card deals. But now that the Fed rates went up, as compared to those of 2002 rates, it became more difficult to find a good low interest offer with favorable terms. But once you find one and get approved, hold it, don’t drop it, for low interest deals are really great and can actually save you money.

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3 Responses to “0% APR for Jack, Fees and High Rates for Zach?”

  1. Kendall said:

    I hope that the process won’t stop and credit card deals will become even more profitable in future.

  2. Emma P. said:

    Nothing in the financial industry lasts forever. If you have bad credit, there are tons of different ways to fix it.

  3. mariahuston said:

    Last year I made a late payment. My APR immediately skyrocketed from 12% to 19%. It was awful. Now I always make payments on time.




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