Just in time for Christmas, First Premier Bank is out with a new credit card that offers rates as low as – 80 percent!
It’s no mistake. This credit card’s interest rate is 79.9 percent. […] So for a $300 balance, a cardholder would pay about $20 a month in interest.
The rate is the highest on the market, and- according to the latest rate information bankrate.com – almost seven times as large as the annual percentage rate (APR) on other credit cards.
However, before casting a skeptical eye towards the folks at First Premier, check the fine print:
Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line. […] First Premier lowers fees to just that limit – $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence, the 79.9 APR, up from the previous 9.9 percent.
Companies like First Premier play an important role in the credit market. While better-known companies like Chase and Citibank offer credit products with relatively low APRs to consumers who have solid credit histories, they are less likely to lend to those they consider a credit risk.
This is where First Premier steps in; they’re willing to provide a credit line to you even if you’ve got a bad credit score, but they have to be compensated for the greater chance that they won’t be repaid.
Previously, that income came through annual fees. However, now that these fees are capped by the federal government, First Premier can either stop offering their credit product, or they can make it up elsewhere – in this case, through a higher APR.
Some consumer advocates have called for a cap on all interest rates – but the reality is that an interest cap only ensures that credit is no longer available to those consumers who benefit from borrowing despite their poor credit history. For instance, they might be faced with a job loss or other life emergency, and temporarily need money to cover bills. In a situation like that, expensive credit is far better than no credit at all.
Whatever type of credit product you choose to use, Econ4U has a few basics you need to know on understanding and improving your credit score.
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[...] Debt peaks among households just above the median income level because these are the people most likely to live beyond their means to try to keep up with the Joneses. And those in the 20th percentile and under are the least likely to carry credit-card debt because they don’t qualify for as many credit options in the first place (and are unlikely to qualify in the future given the new, stricter lending standards). [...]