Tossing and Tortured 'Till Dawn

I come back to you now, at the turn of the tide.

Thursday, February 23, 2006

Loan sharks are better than credit card companies:

No, really.

You know those wonderful credit card offers you get in the mail?

Check out this recent one from "First PREMIER Bank" :

Now, initially, this looks like an appealing offer, with a purchase APR of 9.9% and a cash-advance rate of 19,99%.

But, wait, there's more. Keep in mind that many small personal loans and cards offered by reputable banks have no associated automatic fees.

In addition to the interest, you must pay:

  • $72.00 / year "Participation fee,"
  • $29.00 "Account setup fee"
  • $48.00 / year "Annual Fee,"
  • $20.00 / year Additional Card Fee
  • $95.00 "Program fee."

The credit line that will be awarded you if you apply could be as low as $250.

$250, less 29, less 48, less 95, less 6 (monthly prorated portion of the "participation fee,") leaves a magnificent 72 dollars initial available credit. You will of course begin paying interest on this $178.00 immediately. That's in addition to the 6 dollars a month you'll have to keep paying for the "particpation fee."

What utter garbage. You can see, perhaps, why religions called usury a sin?

You have to pay all of this for absolutely nothing except the "privilege" of having the $72 credit available to you.

Presuming you elected not to get an additional card, avoiding that $20 / year fee, when you work out the numbers on this $250 credit card, the interest rate is over 80 percent!. And that’s presuming you never take a cash advance, never make a “late payment,” or pretty much do anything resembling using your wonderful First PREMIER Bank credit card.

Absolutely disgusting, pathetic, unethical.

Since I’m an economics major, I actually find subjects like this of considerable interest, not to mention disturbing.

The difference between “Lending” and “loansharking” is that, given the right circumstances, a loan can be mutually beneficial. The lender’s rate of return is the difference between the interest rate he charges you versus what the government would give him, reduced by the percentage of people like you who don’t pay him back. You can do some things that you wouldn’t be able to do with the capital you’ve got at your disposal, like buy a house. But a house gains in value, so presuming it appreciates at a higher rate than the interest you’re paying, you’re winning, too. Or, a ten thousand dollar car is really only worth two thousand dollars a year to you, so it’s better for to set it up so that you’ve got to pay closer to this. You’ve paid off the loan when the item is no longer useful to you.

In loansharking, the principal is entirely irrelevant. In illegal form, it’s often in the form of supporting a drug or gambling addiction; in the legal form – a credit card like this – it’s in the form of more useless “stuff” that you don’t really need. Either way, it’s not about the loanshark getting his principal back, plus interest. It’s about never getting the principal back at all. With all of the fees, charges, and other ways to increase your debt load, the loanshark “helpfully” allows you to defer payments, incurring more interest and fees, and overall increasing the amount you “owe,” up until the point where you’re forced to “refinance” your home and give its value to the credit card company to compensate.

Got it?

First PREMIER Bank is making its money not from lending to you, but from stealing from you. Their primary sources of income are fees, charges, and compounded interest. It’s not about the principal.


  • At 1:03 AM , Blogger ryan said...

    Usura rusteth the chisel
    It rusteth the craft and the craftsman
    It gnaweth the thread in the loom
    None learneth to weave gold in her pattern;
    Azure hath a canker by usura; cramoisi is unbroidered
    Emerald findeth no Memling

    Usura slayeth the child in the womb
    It stayeth the young man's courting
    It hath brought palsey to bed, lyeth
    between the young bride and her bridegroom



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