It Could Take Short Term Loans to Pay Off This Credit Card

The lending industry is changing

An interest rate of 79.9%? Can you be serious?

First Premiere Bank is offering a credit card with so high an interest rate, that it could take short term loans to pay it off. If you have heard of the tactics credit issues used at the height of the recession, then you know that they are willing to get nasty. A lot of people saw their credit slashed, their interest rates soar or their card accounts closed altogether during the economic downturn.

Credit lenders were suffering due to handing out credit in months prior with no regard for defaulting loans. Unfortunately, people did default—in record numbers. They also soon learned that credit cards were not the reliable option they once thought they were.

The newest tactic

The newest tactic in the world of credit is a credit card with an interest rate of 79.9%. First Premiere Bank, a subprime lender, is the company offering the loan. When you open an account, you get a credit line of $250. That account though, comes with $256 in fees for the first year it’s opened. Though there are rules that limit the fees at 25% of the card’s credit line value, there are ways around it. First Premiere knows that yes, there is a cap on the fee, but there is no cap on the interest rate. Anuj Shahani, analyst, said, “It’s the highest on the market. It is the highest we have ever seen.”

The issue with First Premiere and other lenders

The real issue is the reasoning behind the outrageous interest rate. First of all, First Premiere Bank is targeting the person with a bad credit history for the product. Their advertisements center on the phrase “bad credit.” The company is setting itself up as one of the few lenders willing to take a chance people who have bad credit histories and enable them to start repairing their credit. Secondly, this is the most credit-reliant group in the market and the problem is that they are also the group most likely to default. In response to the bank picking this as their target market Shahani said, “It’s outrageous. People will need additional short term loans just to pay off the debt on this card.”

The bank’s response

Before you think that the bank has any reservations about the rate, think again. The company said that though it hasn’t committed to using the high interest rate consistently, it is still going ahead with it for now. A spokesperson for the bank said that the rate is reflective of the company “pricing our product based on the risk associated with this market.” The bank has an aggressive direct-mail marketing plan for coming weeks. They promote their acceptance of a wider range of credit scoring consumers than any other company. They also note to the customer that “you might have less-than-perfect credit and we are OK with that” on the flyer.

The future customers of First Premiere Bank

The future customers of the bank will most likely have low credit, although there are signs that the bank is being more discerning about whom they extend credit to. For example, 84% of mailers were sent to subprime households and that’s down from 91% last year this time. Despite the uproar over the credit rate, industry insiders are saying that people will most likely deal with it. They will stretch their budgets, take out short term loans or borrow from family to make payments. CEO of CardHub.com Odysseas Papadimitriou said, “Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit.”

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