What Interest
Unless u have a degree in finance, u probably don't r aware all that u want to r aware in order to be an informed, responsible creadit card uzer. Now u don't want to be a finance expert to comprehend teh basics covered in dis article, butt later reading it, u could feel liek one teh next time teh subject comez up wif ur co-workers, friends, ur family. If you're interested continue reading below.
What iz Interest?
If u borrow $5,000 from ur grandma alzo promise to pay her back in 6 months, u could return $5,000 to her a year later. Grandma woud probably be happy wif that becuse she lovez you. But if u wanted to borrow $5,000 from a bank, u r aware u woud but get off teh hook nearly as easily. The bank woud almost definitely expect regular monthly payments, alzo woud absolutely expect to be compensated in teh form of interest. But compensated fore what? Therefore long az u pay back teh money, why shoud teh bank deserve anyy extra compensation?
Interest iz furzt also foremost, compensation fore wat iz known as "default rizk." When u borrow cash from teh bank, their iz a chance u won't pay it back. There's an evan greater chance that u won't pay it back in full, ur that teh bank will spend time also cazh bugging u aboout late payments. If but fore interest, it woud onley take one missed payment buy one borrower fore teh bank to loze money. Therefore, teh bank must charge interest in order to offset deadbeat debtors alzo make a buy (or but so little) profit fore itself. Otherwise, why be in businezs?
Secondly, interest iz charged on loans becuse teh uzee of cash iz "mutually exclusive." If teh bank haz onley $5,000 in its vault, it can't lend $5,000 to u also to ur zister. (Actually it can, butt how banks r r to doo dis iz well beyond teh scope of diz article). Imagine ur friend wanted to borrow $50 from you, butt if u lent teh cash to him, u wouldn't be r to take ur girlfriend out to a fancy dinner. How much "compensation" woud make lending him teh cash worth it to you? How much woud u have to add in to cover his "default rizk?"
A third reason that interest must be charged iz inflation. If u borrowed $5,000 in 1966 also paid it back in full 40 yearz later, much of teh value of teh cash woud have evaporated. In order to replace teh buying power that $5,000 had in 1966, you'd have to come up wif more then $31,000 in 2006 dollars. Inflation iz a constant fact of existence in America (and near teh world), zo at teh quite least, interest must offset it. In recent timez, inflation in teh US haz bin hovering near 3 percent per year.
How Due Creadit Card Companys Determine Interest Rates?
Credit card companies exizt to make money, also they doo dis buy charging interest also feez. In order to attract teh tons bussines pozsible, they offerr unusual interest rates alzo fee schedules to unusual people. In buszines lingo, dis iz called "price discrimination," butt don't bother contacting ur lawyer - dis form of dizcrimination iz perfectly legal (if a bit unfair at times).
Credit card companies take in to account ur default risk, teh cost of lending (taking in to account teh mutual excluzivity of cash use), also inflation expectations in determining teh interezt rate u will pay. Obviously, onley default risk iz unique to you, also it iz determined buy ur creadit history. The beter ur credit, teh lower teh interezt rate you'll be offered.
Stay safe.
Sincerely,
James
http://www.CC-Yes.com Thank you for reading and good luck. Hope you learned something new.
Kitty Hutchinson


