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How About a Credit Card with a 79.9% APR?!?

By JLP | December 18, 2009

Beth sent me a link to this story this morning:

Credit Card’s Newest Trick: 79.9 Percent Interest

Basically, this bank used to charge $256 per year in fees on a credit card with a $250 credit limit. The new credit card laws limit fees to 25% of the credit limit. So,…the bank is now charging a $75 annual fee and is jacking up the interest rate to 79.9% on a maximum credit line of $300.

There’s no way around it, 79.9% is an extremely high APR. I ran a few numbers with a spreadsheet assuming the following:

January 1, 2009 – Get the card and immediately charge $300.
February 25, 2009 (and every following month on the 25th) – Make payment of $20.

On the statement closing date of December 25, 2009, the card would still have a balance of $284 (and this doesn’t even include the $75 card fee!).

Now, if this person were able to afford to pay $30 per month, the ending balance would be $137.

All I can say is at least the credit line is capped at $300. At least people can’t go out and charge up several thousand dollar’s worth of stuff.

Also, since the card carries a higher APR and a smaller annual fee rather than the much larger annual fee, the interest charges can be avoided by not carrying a balance.

I’m just thankful I’m not in a predicament that would require me to pay off $300 over time.

Thanks, Beth for the link!

Topics: Credit Cards | 15 Comments »


15 Responses to “How About a Credit Card with a 79.9% APR?!?”

  1. kitty Says:
    December 18th, 2009 at 5:38 pm

    It’s probably for very high risk borrowers. Like a junk bond.

  2. Mark Says:
    December 18th, 2009 at 11:35 pm

    Usury.
    Capitalism at its very finest.
    And unaffected by the “crackdown” on lenders.

  3. Traciatim Says:
    December 19th, 2009 at 9:23 am

    I don’t understand why this is so terrible?

    If you were going to lend to people and knew your default rate was going to be in the 40% range or higher, what interest would you charge if you want to make 15% on your cash?

    Blame anyone who uses this type of product for why the product exists, not the company for offering something they feel they can make money on.

  4. Andrew Says:
    December 19th, 2009 at 2:44 pm

    That’s Premier Bankcard. They sell cards to people with bad debt and fico’s under 600. They used to cover this risk with fees, but due to the February legislation, must now do so with interest.
    This card is cheaper than the old one as long as one doesn’t use it in the most imprudent way possible, i.e. maxing the card out and making only the $30 minimum payment.
    I am disappointed by the populist criticisms I have heard so far.
    Having worked in sub-prime credit cards before, I know that Bankcard will most likely still lose money as that risk pool operates at a 20 to 25% delinquency rate.
    These credit cards are not the problem. Personal irresponsibility is the problem. The problem is allowing your life to get to the point where you cannot pay off your $300 credit card each month or paying your bills so poorly that you cannot borrow at less than 80% interest.
    They have been doing this in the U.K for awhile. Paying debts with monthly payments sucks. This justs sucks a bit more. As long as credit card companies are not repricing existing balances and changing terms midstream, there is nothing to complain about.
    If you don’t like usury, don’t borrow from usurers. This credit card company is just blurring the lines between them and payday lenders.
    The KEY difference is that they do not roll your defaulted loan into a new one, thereby increasing your debt burden.
    This is less than a $500 mistake. How many people have taken car loans or mortgages, sold at a loss or been sued for a difference, and had nothing to show for it in the end.
    I feel more sorry for those who cry ‘predatory lender’ at such things than for those who have these cards.
    Thanks for the link JLP, and also for your reasonable analysis. I wish more would do the same.

  5. kitty Says:
    December 19th, 2009 at 7:57 pm

    Mark – if you are so nice, why don’t you open your own lending business and lend these high risk borrowers money at better rates?

    Look at it this way: bank is selling a product. This particular product may be very expensive, at least if you choose to use it in the most expensive way. It can be cheaper – $75 a year – if some of these borrowers use it to improve their credit by paying in full or even locking it up in a drawer for a year. $75 to improve one’s rating may not be a bad deal. $75 is more expensive than $0 that people with good credit rating pay. Too bad. $0 a year product is not available for high risk borrowers…. But they still have a choice – nobody forces them to get this card.

    As with any expensive product, you have a right to buy it or not. You can buy it, you can laugh about it and walk away. Free choice.

  6. Joe Says:
    December 19th, 2009 at 9:02 pm

    See, this in when consumers must protest simply by NOT USING THIS CARD.

  7. Andrew Says:
    December 20th, 2009 at 10:30 am

    Regular banks charge a 10% fee on direct deposit advances. That’s %150 interest. Nobody complains, though. I bet the same people that are up in arms about this card have taken an advance, or paid an ATM fee. It is fallacious to annualize the interest rates on loans not intended for long terms. Pay day loans cost 15/100. That is much more enlightening than saying that they have a 300% interest rate.

  8. BG Says:
    December 21st, 2009 at 11:05 am

    From the article:

    ‘”Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit,” said Papadimitriou.’

    I disagree, people are much better off having no access to credit, than to be screwed over by this company.

  9. kitty Says:
    December 21st, 2009 at 12:06 pm

    “I disagree, people are much better off having no access to credit, than to be screwed over by this company.”
    So BG – if you need money for a life-saving treatment, you’d rather be dead than in debt?

  10. Sam Says:
    December 21st, 2009 at 12:12 pm

    Seems to me that a person would be better off just paying with cash and avoiding a credit card altogether.

  11. BG Says:
    December 21st, 2009 at 12:26 pm

    #9) They’d be better off working a payment plan with the medical provider. Anyhow, a “life-saving” treatment would never be denied for financial reasons…

  12. kitty Says:
    December 23rd, 2009 at 4:19 pm

    “They’d be better off working a payment plan with the medical provider. Anyhow, a “life-saving” treatment would never be denied for financial reasons…”
    1) Not always possible – it’s a rather naive assumption that everyone would agree on a payment plan. In case of certain drugs for example, it’d be a huge risk for a doctor to pay for a drug and then “hope” you’ll pay it back. Normally they wouldn’t order a drug for you. You are very naive if you believe that everyone will agree on a payment plan or if this payment plan will not carry high interest.

    2) You’ll not be denied treatment if you have an immediate emergency that requires short treatment in an ER, but not for longer term care. Yes, if you have an emergency e.g. you are hit by a bus or you have a heart attack and you are taken to the ER, they will provide emergency treatment. But if you need an ongoing expensive drug and it’s either not covered or has large co-insurance, you are on your own. In co-insurance case, there are some charitable organizations that help with co-insurance for some drugs, but not for everything. FYI – 20% co-insurance for some cancer drugs could easily be over $1000 a month.

    Admittedly, this card is not for this type of emergencies. It is for people who need $200 until the next paycheck. Sure it’s better not to be in this situation. But – let’s say you are a single mother who did make mistakes in the past and got herself into this situation. But now she has bad credit, small paycheck and let’s say a child who urgently needs dental care. A lot of dentists would require payment upfront from people who don’t have insurance. I am sure it’s possible to come up with other examples. Keep in mind – these are people with very bad credit i.e. those with a history of not having paid back what they borrowed.

    Regardless, it’s not your call to make whether or not somebody else is better off with access to credit or with no access to credit. You don’t like the terms, you don’t get the card. But we don’t have a right to deny others the choice.

    As to “being screwed over” — do a little math. As Andrew said – this risk pool carries 20-25% risk of default. Think about investing your money in bonds that carry 20-25% risk of default. This is much worse than junk bonds, since the default rate on those even at the height of credit crisis never reached 20%. What interest rate you’d want to get to make this investment which is riskier than junk bonds attractive to you?

  13. andrew Says:
    December 28th, 2009 at 12:11 am

    20 to 25% are in default at any given moment. nearly half will charge off their balance as bad debt at some point.

    These people would be better off living on a cash basis with an emergency fund. I’m just sick of people demonizing companies and treating customers like victims. Bankcard is insanely expensive. They are honest about it, though.

  14. Roy Says:
    January 10th, 2010 at 12:47 am

    I went cash and debit-only six years ago. It’s painful at first but one gets used to it. I used to save up for stuff and just went back to that habit.

    Its really nice to be able to sleep at night under a roof that I own in full not worrying about making the next payment. Gave me a lot of freedom in my life including where I want to live and who I want to work for.

    It’s just a matter of time before the other credit card companies get to 80 percent. They are already 3/8ths of the way there.

  15. matt Says:
    September 30th, 2010 at 1:47 pm

    This card is meant to build your credit and it does just that. You just have to use it responsibly. If your credit is poor, the card is one of the few options a person has. As far as the high interest rate goes, its no different than increased rates on car insurance for high risk drivers. If you have a poor credit history your going to have to pay more until your score increases. Furthermore, the interest rate wouldn’t have been increased if the government wouldn’t have pass the CARD act anyway. This country was build on the capitalism not by “big government.” Those of you who think different are ignorant and probably voted for Obama…. Thanks a lot!!!

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