In this episode of
Money Creation Explained, we are going to cover How Credit
Cards Companies Create Money.
Current options to borrow are from banking and lending
institutions who charge high interest rates. Some credit
cards offer zero or low interest rates for a time period but
then afterwards interest rates spike up as much as 29% APR
(annual percentage rate) plus late and other fees. These
credit cards companies lure people into their trap knowing
that there will be many people who fall into this interest
trap. Once in debt, it is hard to get out.
There are many reasons why credit card interest rates and
other fees are very high. The majority of credit cards are
unsecured loans. Unlike a mortgage or an automobile loan,
where the banking institution has collateral to take if the
borrower does not make their loan payments, there is nothing
the bank or card issuer can collect besides interest and
negative credit ratings for late payments.
Another reason that credit card fees are very high is that
borrowers are unpredictable with their purchases. The card
issuer does not know how often borrowers will use the card,
how much will be charged (within credit limit provided),
where it will be used, or when it will be paid back. This
added risk translates into a higher interest rate to
cardholders since banks issue unsecured credit to millions
of people. Bank issuers never know when the balances will be
paid off by their borrowers compared to the funds that they
have laid out. High interest rates charged by these banking
and credit card institutions allow these companies to
operate and make a profit.
IOU Notes is a peer-to-peer credit and loan platform.
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