How do credit cards get away with outlandish interest rates? 30%???

Question

I thought there was a law that prevented them from going higher than a certain number. I used to see the highest rate being 21% but now it seems to be up to and over 30%! This is why I don't have any credit cards but how can they do this legally???

Plus, the grace period for these cards are getting shorter (21 days instead of the expected month) meaning your interest accrues several times more frequently that you think, making you pay interest on interest charges. How come people still use these horrible things?

Note: I have no desire to get a credit card. I've lived happily without one for the last 8 years but am still amazed at the corporate irresponsibility and gullibility of the people - in equal parts.

Answer 1

Because dear heart, some people are stupid enough to accept a card with these outlandish rates.

Don't blame the companies, don't blame the government. Blame the persons that use those cards. It is impossibile to protect people from their own supidity. Caveat Emptor--Buyer beware.

Answer 2

First, under the stipulations of default it's totally legal. It's only illegal if you are not in default. The laws have been lobbied and voted so that default has a wider meaning. That is to mean, ANY default attached to your SS# will result in a default on your credit card.

I think credit cards are a high wire act that are nessasary to form the much needed 'credibility' our capitalist society demands. They take discipline and careful manuvering to accomplish the credit score you need to aquire some of life's big ticket nessasaties (house,car,etc) without being beaten into a high interest hole because lack of or poor credibility.

Your best bet is to pay off the credit cards and NEVER spend more than $200 on one (even it it has a limit of 25k) Pay off regularly, and if an interest rate goes up from accidental default (like the grace period issue you mention) then pay off the card and CANCEL it. I guarantee you they will do all they can to keep you from canceling, even lower that interest rate.

Answer 3

Nobody is forced to pay credit card interest.

Every person paying it voluntarily borrowed the money and carried a balance.

As for the max interest rate, the issue is that the interest rate is regulated by the state where the card is issued. Some states have low max rates. So the credit cards companies issue from states with high max rates - Delaware and North Dakota are often used.

Answer 4

Good question as to why people would use them, especially one with the conditions you described.

My Visa has a 9% interest rate. I only pay interest on the unpaid balance and since I pay the bill BEFORE the due date every month and I pay it in full, I NEVER pay interest at all.

The banks charge that much in interest because people are willing to pay it to be able to have a credit card and max it out I guess. A better question might by, why are people going into debt up to their eyeballs and thus limiting any options they might have of getting a lower interest credit card or loan or another good question might be, why can't people learn how to manage their money?

Answer 5

It is legal and should be. Desperate people do desperate things and in this Country there are a lot of uneducated desperate people out there that have no concept of how to budget their money and use credit cards for cash advances and to pay for small everyday purchases.

I have 3-credit cards and use them once a month just to keep them current. I pay the full balance before it's due so I never pay any interest.

Answer 6

Credit cards are unsecured debt where historically riskier patterns of repayment necessitate higher rates of interest. These rates are advertised as 2.5% per month which appears small and it is also mentioned that the interest will be charged from the period amount is unpaid, whereas if the whole of the billed amount is not paid on the due date the interest will be charged from day 1 of the transaction.

Answer 7

There isn't a law, and shouldn't be. The smart move is to pay your credit card bills on time and in full, and if you do that, the interest rate is immaterial: you don't pay any.

Answer 8

desperate people, is what makes it possible to have such outrageous interest. I personally prefer to pay cash and only have one credit card that is used for reservations and such. I get annoyed that every store I shop in tries so hard to get me to sign up for a store credit card!!! My motto is if you can't afford to pay cash, then you don't need it!!!!

Answer 9

As far as I know, 30% is illegal! That amounts to Organized Crime, or Loan Sharking.
I pay 5.5% through Wells Fargo. I suggest you shop around.
Good luck.

Answer 10

Some people don't have a choice. They need money and they have no other way. They are also uneducated and don't know to shop for a lower interest rare. It's sad but true.