There is no such thing as
free
credit
There are many ways that companies immediately make money from 0% deals.
Fees are charged at the point of
transferring a balance, purchasing a product or drawing cash.
High interest
rates are charged when the introductory 0% period comes to an end.
Payment protection insurance can effectively double finance costs of a low interest rate loan.
Interest free introductory periods are offered to customers because a gain in market share is achieved when lending institutions sign up more clients. This keeps shareholders happy because the activities of the company appear to be growing. In turn the company share price becomes more valuable.
Many companies put intense pressure on prospective clients to include payment protection when the loan agreement is signed. It is true that some contingency plan is needed to ensure that loans can be repaid if income from earnings is no longer available. However, if clients already have assets that can be sold, other insurance cover, disability cover and other forms income protection, there is no reason why payment protection is needed from the customer's point of view. If clients are overinsured, then income protection only serves to cover the cost of offering interst free credit. The isurance sold will earn the lender a commission and other income. Insurance terms can be so stringent that payment becomes practically impossible unless the client is bedridden, effectively causing the total finance costs on the loan to double in the long term.
If you end up with a balance that needs to be paid at the normal credit card rate or needs to be transferred to a new credit card, you end up paying fees, insurance and interest. Therefore, the credit is no longer at 0%.
If you keep
accumulating debt, you will reach a point where you have more debt than
assets. This state is called
insolvency. If you reach this state,
lenders can request that you immediately repay all the money you owe. They can also start charging interest on
missed or late repayments. Conditions
in the small print allow them to cancel your 0% introductory period if you miss
a payment or pay late.
Insolvency
practitioners offer solutions at all stages of debt management. Some of the following remedies are
available:
ü Debt management strategies
ü Individual voluntary arrangements
ü Re-mortgages
ü Informal arrangements with creditors
Insolvency
occurs when you owe more than you own.
This is to say that if you sold absolutely everything you own, you would
not be able to repay everything you owe.
It pays to
avoid this state at all cost. Lenders
will not warn you if you are in danger of becoming insolvent. They will usually just stop granting more
credit once you default on your loan repayments. That means, no more 0% balance
transfers and interest payable on all the money you owe.
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