Why Credit Cards Charge So Much Interest
Even those great interest free credit cards eventually start charging interest, once the interest free period has passed. So why do credit cards charge so much interest?
Basically it all comes down to risk. The interest rate for any loan or credit card is directly tied to the risk of loss to the lending company. The high rate of interest is because when a person stops to pay back the balance on their credit card, the credit card company is basically taking the loss on the money that has been already leant out.
It’s different when you take out what is called a ’secured loan’. These types of loans are ’secured’ against your home or some other collateral, which allows them to charge lower interest rates. You can see how secure a loan is by what collateral is actually securing the loan. Loans for older cars are typically higher because the value of the car drops quickly over time. On the other hand, a home loan will most often have a lower interest rate because the property will go up in value over time.