Sub prime lending is risky business, but are these people serious?
From the AP:
Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.
In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.
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The terms are eyebrow raising, but First Premier targets people with bad credit who likely can’t get approved for cards elsewhere. It’s a group that tends to lean heavily on credit too, meaning they’ll likely incur the steep financing charges.
We Kashkaried the balance and payments, and here’s what we came up with:
A $300 balance, at 79.9% APR, making an estimated starting minimum monthly payment of $20 gives us these whopping numbers:
TOTAL TIME UNTIL PAYOFF: 9 Years
TOTAL INTEREST PAID: $1,775
TOTAL INTEREST PAID AS A PERCENTAGE OF ORIGINAL BALANCE: 490%
source: Federal Reserve Bank Credit Card Repayment Calculator
source 2: Percentage Change Calculator
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Mac,
I checked my kashkari to see how many times you have used the ‘k’ word in your posts. You may be surprised to hear you’re already up to 700 Billion!
Musing on the (im)morality of the First Premier card, it might behoove folks to max their credit lines on Day One and then declare a default on Day Two. Considering the issuer’s target market, it might be possible to get a new line on Day Three whereby the recipient repeats steps one & two…..and so on…..This model could SAVE the middle class!
Keep up the Great Work!
– TomOfTheNorth