Lending is not properly regulated
The most
problematic area of lending that is not regulated is that lenders are free to
set terms and conditions as flexibly as they like, charging as much as 29% on
some credit cards.
Not only can
they charge high interest rates, but they include the following types of fees
in loan products:
ü introductory fees
ü cancellation fees
ü early repayment fees
ü balance transfer fees
ü cash withdrawal fees
ü balance protection fees
ü administration fees
ü late payment fees
This all
drives up the cost of the debt, and should be included with interest when
calculating the final cost of the product you buy, collectively called ‘finance
charges’.
The second
area is that lenders are not required to verify whether you can afford to repay
the money they lend to you.
These
institutions, such as banks and credit card companies, are competing for market
share. There is one pot of household
income in the market, and some of it has to go on mortgages. The rest is seen as ‘disposable income’
which lending institutions want to get their hands on. The larger the share of disposable household
income they can control, the more interest and fees they can collect. This makes them a lot of profit and keeps
their shareholders happy.
Enter: the 0% balance transfer and 0% interest on
purchases for 9 months. This can give
them a bigger share of the market in the hope that they will reap the rewards
after the introductory period runs out.
The interest may be 0%, but the total finance costs often include a 2%
to 2.5% fee for transferring a balance or withdrawing cash.
As we have
seen from their record profits, they do make it up somewhere. Whilst banks may offer you 0% credit on your
plastic, they can add it on to your mortgage repayments or collect it in fees.
Large lending
institutions have consumer data on millions of customers, studying every detail
of spending behaviour. They will
analyse weaknesses in shopping trends and collect their fees where we are
willing to pay high finance costs, making record profits in the
process.
In the event
that lending institutions get their calculations wrong, they will send out the
infamous interest rate increase.
This is the
third key area that regulators do not control.
Banks can offer flexible interest rate products, and can use it to
protect their profits when necessary.
This is however a last resort, as it can chase customers away. Never the less, some large lending
institutions get away with charging huge interest rates. They may use tactics such as granting you
more credit. This is a ‘sweetner’ to
encourage you to remain loyal.
Cheap
Credit Is Too Good To Be True
Together We Owe
Over £1 Trillion
Debt Can Make Goods More Expensive To Buy
Lending Is Not Properly Regulated
The Threat Of
Insolvency Is Very Real
There Is No Such
Thing As Free Credit
You Can and
Should Use Debt To Make Money