What is high interest credit?

High interest credit cards, and loans are pretty common these days. They can range from high interest car loans, credit cards, and lines of credit... even mortgages.

As the major source of income for banks, credit card companies and other lenders, high interest is charged as a way to make money, and build a reserve against non-payment of loans and other expenses.

Who, where, when, why, and how

Who Charges high interest
Any credit provider who has high risk clients. Generally, a creditor will charge high interest rates if they are in a higher risk situation.

Payday loan companies are usually the highest interest rates charged as they deal with people with all types of credit situations. Many times people with no credit rating use payday loan companies for loans because they can't get credit with more traditional lenders.

Merchant credit cards like Sears, or HBC, or HomeDepot will charge 29.99% on purchases where a balance is outstanding.. This is called retail interest rates. The retailer makes some of it's profit from the interest charged.

Who pays high interest rates?
There are two kinds of consumers who pay expensive interest rates.
The first are those who have bad or no credit score, and are penalized for their new credit history or less than perfect credit history.

The second are those who pay excessive interest costs because they aren't aware that they could lower their interest just by asking for lower interest rates. The truth is, creditors aren't going to promote their high interest products because this is where they make their money. So... if your credit score has gone from bad to good, they're not going to automatically to move you from a ballooned interest charge to lower interest without you asking.

Ask for a lower interest rate. the best thing that can happen is that you'll learn what the creditor requires to move you away from higher margin products.

Which rates are high interest?
High interest rates are considered to be 14.9% and higher. If you're getting lower than 14.9% you'll need to have a pretty good, low risk, credit story.

If you're paying 29.9%, this means that either you're really bad risk, or you're not really savvy when it is available in the market place.

When do you get charged high interest?
Interest charges are usually calculated monthly. On a credit card, the interest charged will be on the outstanding balance at the time of the statement. Please see your credit card agreement and contract for more explanation.

Some interest is compounding daily, but I'm sure that most interest is accumulating by the month.

Why do you get charged high interest?
As mentioned above, people who pay exhorbitant interest rates are those with little credit history, bad credit history, or people who don't know about asking for low interest rates.

Bad credit comes from not complying with your credit agreement. If you pay your bills late, or do debt settlement, consumer proposal etc, then these types of activities will lower your credit score, and indicate to the creditor that you're a bad credit risk.

A creditor who lends to higher risk clients has to assume that they'll have a certain percentage of clients who default on payments. Defaulting means that the customer doesn't pay the interest and principal amounts uptodate and as agreed.

How do you get charged high interest?
The creditor simply decides that the based on your credit history, and credit score, they'll charge you rates that make sense to them.

In the contract, usually, the creditor is able to increase your interest rate, by first giving you notice, whenever they feel like it. It's as easy as that.
If you get a notice that your interest rate is going to get higher, then I suggest asking them to keep the rate the same , or lower, and / or move the debt to a less expensive credit facility.

Please check the written agreement you received from the creditor . This could be at the time you signed up for the account, or a revision sent to you at a later date.

The creditor has a great deal of power to give you a more expensive interest rate, if they choose to.

Ultimately, a profitable interest rate means that you're paying more money for credit. This allows less money for spending on other necessities.