How do credit card companies manage to offer 0% interest rates?
I haven’t spoken to any credit card companies about this so this is purely speculative but I would imagine they borrow funds at a set interest rate for a set term. They then take on new customers at 0% in the knowledge that some of those customers will not clear their cards each month and will make purchases as well as transferring balances at 0%.
These customers get charged a much higher rate of interest than the rate at which the card companies have actually borrowed the funds which subsequently covers the lower interest the card companies pay themselves.
Then there’s all the late payment fees and the balance transfer fees.
In addition to which, people (including myself) are getting royally shafted by interest rate hikes just because during a financial crisis/recession and reduced earning period only the minimum amount is being paid each month.
How is this fair?
It isn’t but so far I don’t see a way around it.
I could dispute the debt and try to get a copy of the original agreement and I am sorely tempted to do so but for two reasons:
1/ I used the money and I’m a responsible person (or at least I like to think so!)
2/ MBNA are pretty hot at keeping original agreements (so I’ve heard)
MBNA themselves phone me up asking me if I want to consolidate the debt into a secured loan against my house.
I’m starting to think this is borderline extortion!
This is what I think when I read between the lines of the letters they send:
Dear MBNA customer,
We can see you are only paying the minimum amount off your credit card balance each month and as the economy is suffering and we understand your income may have been affected, we’ve decided to hike your interest rate up to about 25% – 28% so it now costs you a lot more than it did.
But don’t worry, as a valued long term customer we’d like to offer you the opportunity for us to pass your details to our preferred secured loan partner who will take a share in your house until the debt is paid! We knew you’d be happy to hear that!
What we’ve actually done here is steer you into a predicament that could:
1/ Earn us commission for passing your details to our secured loan partner
2/ Get your debt off our books and makes us look good to our shareholders.
3/ Give us more money to use to snare more customers into taking one of our products
If you’d like to leave feedback on how you think you’ve been treated please fill out the form below:
On a scale of 1 – 10 how would you rate your experience (1 being excellent and 10 being really really excellent) please circle your response: 10 – 10 – 10 – 10 – 10 – 10 or 10
How do we get credit card companies to play fair?