Tag Archives: higher interest
How To Protect Yourself From Pre-Approved Credit Card Offer?
Have you received before a pre-approved credit card offer that sent to you through your email address? If you are not, then you are the lucky one. Most of people who have access to email are receiving dozens of “good offer” from credit card companies. Low-internet rate and higher credit limit are among the good deals in the offers and the best part is: it has been pre-approved to you. Sound good? Well, before you go ahead and accept one. Ask yourself whether you really need it or not. According to the credit card site CardWeb.com, average American household are holding a $10,000 credit card debt. Don’t let you be one of the statistics.
The best way to keep credit card debt down is not to use a credit card. But if you do receive a pre-approved card that intrigues you, at least know what you are getting into before signing on the bottom line:
What interest are you paying? Make sure you understand the interest rate you will be paying for. There are two types of interest rates, fixed-rate annual percentage rate (APR) and variable rates that swing according to the market rate. A better option would be APR because credit card companies have to notify you before raising rates.
The low interest rate being offered is usually only an “introductory rate” which means the rate can – and probably will – increase significantly at the end of the introductory period. This means that balances transferred from higher interest rate credit cards to the new, low introductory rate card could, over the long run, actually cost you more in interest payments. So, be aware of the terms and conditions before you sign to accept the card.
Know that a credit card may carry more than one rate. You may not aware that most of credit cards carry more than one rate. The balance transfer and cash advance normally have higher interest rate. Interest rate shows in the offer normally is the interest rate of your purchases with credit card. Hence, at the end you probably pay higher interest rate if you have balance transfer or withdraw any cash advance with your credit card.
Credit card companies may raise the interest rate if you have late payment. Some credit card companies will immediately raise your interest rate from introductory teaser rate to the regular rate if you are late just one time.
Don’t accept the new credit card offer if fee involved. If there is fee involved with your new credit card, don’t accept the offer. Why pay a fee for a credit card when, with good credit, you don’t have to? If you have good credit, there are many other better offers which you can choose from.
Many of these cards are just preliminarily approved. This means that when you actually apply, the credit card company will reviewing your credit report in full as well as verifying information provided on your application. Terms and conditions may change according to your qualification, such as higher interest rate or smaller credit line. And if your application is rejected, it could cause at least minimal damage to your credit report.
So, in order to protect yourself, you need to carefully read all of the fine print in the offer and, if you don’t fully understand and like everything you read, throw the credit card offer away. Even if you fully agree with the stated terms and conditions, do some calculations to be sure that the lower introductory rate, especially in the case of balance transfers, will actually save you money over the long run.
The Casualties of Subprime Lending (Page 1 of 2)
Subprime lending has recently caused over 56 lenders to either go out of business or stop issuing subprime loans because of excessive foreclosure rates. The lending community made decisions in the last few years that dramatically eased a borrowers qualifications with a resultant dramatic increase in foreclosures.
The housing demand was so strong that lenders started to compete for the insatiable mortgage demand by making qualifying very easy. One example was the creation of the stated income loan, or the liars loan. In the loan application, the borrower only had to state his income without showing any proof of that that income. Unfortunately about 60% of borrowers over-stated their income on their loan applications to qualify for their loans. A review of lending practices showed racial disparities in African-American and Hispanic low-income neighborhoods which had 1 ½ times as many subprime loans at higher interest rates and closing costs as compared to low-income white neighborhoods.
The lenders planned to compensate for higher default rates by charging higher interest rates and closing costs. But to make payments as low as possible for the borrowers, lenders developed low-initial interest rate loans (teaser rates) or negative amortization (Neg Am) mortgages. With a Neg Am loan, a borrower would actually owe more than he originally borrowed when he went to sell.
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldnt afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in hot real estate markets.
Overlooked by lenders was the fact that real estate investors had become a major factor in the real estate market that had previously been dominated by the retail buyers or single family homeowners. The actual statistics went from investors owning about 2% of all single family homes in 1990 to almost 28% in 2006. This huge increase in investor ownership caused the tail to wag the dog and sent the real estate market into price advances that exceeded historical stock market gains.
Lenders were not discouraged, and to make loans even more affordable, developed 100% financing loans designed to eliminate PMI or Principal Mortgage Insurance by using an 80% first and a 20% second mortgage. This 80/20 program was so successful that it became the standard loan for most new homeowners for an 18 month period in 2003 2005. Now the borrower had two mortgages, the first at a traditional interest depending on the borrowers credit rating and a second mortgage with a higher interest rate of 3% to 5% above the first mortgage rate.
We are now seeing huge default rates among 80/20 financings because the borrowers saw an opportunity to refinance their properties, cash out an equity profit without having to sell their homes, and just walk away without making any mortgage payments.