Banks Love To Give You More And More Credit As Long As You Are Paying | Investments

Banks Love To Give You More And More Credit As Long As You Are Paying

Written by Richard Moran

Wednesday, 30 September 2009 11:55

by RichardMoran

It is always easy to pay with credit cards. Salespeople are taken aback when you offer cash or god-forbid want to write a check. All this keeps the banks happy, they know you'll lose track of your charges and spend more than you normally would.

This gives the banks the opportunity to charge you more interest, over-limit fees, etc. There are ways to prevent this from happening to you but remember the banks are there to make money so you have to be wily to spar with them.

This can be called the Bank "Money Machine"

As your credit card balance goes up and up the interest you pay each month also goes up and up. Many times the minimum payment does not even cover the interest payment for that month so next month you pay interest, on the interest they already charged you. If you err and go over your assigned limit most times they will approve the charge, raise your limit, and just charge you an additional "overlimit" fee for the month.

Another way that they make money is through loans that they may have out to people. When they are late paying their bills, they make money on the late fees that they may charge. These can be a lot more than people think and can amount to a lot of money in the long run. These banks then make money for the payment being late.

The Banks Continue to Encourage You to Use These Methods.

Most bank fees are set at loansharking rates. They cover your $50 overdraft, and then charge you a $25-35 fee (50%+) to do so. If you are a few days late with a payment there is normally a 10% charge. That is 10% for say 10 days - i.e. 30% per month/360% per year!! When they do "cover" your overdraft remember they are not using their money to pay your check, but the money sitting in other depositors accounts which oft times the depositors receive no interest on, or if they do it is 2-4% per year.

The banks have also taken to charge fees to actually get many of their cards. American Express for instance has yearly fees on their cards of up to $2500. This for their Centurion Card which they justify with the extra services offered with the card. Think of it this way - you pay a fee to have the privilege of charging things on the card and paying them back monthly. Remember when you charge on their card AMEX withholds about 3.2% from the amount that actually goes to the vendor you purchased from. This means they get 3.2% per month, or 38.4% per year, on their credit card money. As to the extra services of travel consultants, etc., now you are paying for using their travel service (they make a commission), and charging again on their card - they again make a fee. Not a bad racket!!

Banks and credit card companies all need to make a profit to stay in business. But you will notice that none of the credit card companies, nor the banks who didn't dive into risky investments, have been heard to ask the government for handouts. With their basic business plan it is not hard to to come out at the end of the year with profits. Think of it - get $100 from a friend and give him $104 back at the end of the year. In the meantime you have used that $100 twenty (or more) times over for profit - this is the banks and credit card companies lot in life.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Richard Moran is a Business Consultant and maven for Money Helpers. The Blog contains hundreds of articles, charts, and calculators to aid you in your Business health. All the aspects of the Blog are free and it is updated on an almost daily basis. If you are looking for any Business information or products they can be found on Money Helpers.