Comments on: Why Borrowers With Bad Credit Pay A Higher Interest Rates

By: Interest Only Mortgage Pros And Cons - Amateur Asset Allocator

Interest Only Mortgage Pros And Cons - Amateur Asset Allocator — Tue, 29 Dec 2009 11:02:28 +0000

[...] With an interest only mortgage, there are a few issues borrowers need to be aware of. Do not be misled into believing these are low interest or low risk mortgages. They normally carry very high interest rates and are considered by most lenders to be very risky. Additionally, since most interest only mortgages are also ARMs, you could find yourself with an exorbitant monthly mortgage payment if rates move against you and you are for some reason unable to refinance (perhaps due to bad credit). [...]

By: Your Credit Score | Credit Karma Blog

Your Credit Score | Credit Karma Blog — Fri, 21 Aug 2009 22:16:04 +0000

[...] You are not using the accounts, and you are managing to pay enough to prevent getting hit with charges associated with poor credit. You have talked with your creditors and everything is made good. None of this will bolster your [...]

By: Creditors have better memories than debtors | The Wisdom Journal

Creditors have better memories than debtors | The Wisdom Journal — Tue, 17 Jun 2008 07:32:07 +0000

[...] people understand this simple concept and as a result, don’t understand why no one else wants to lend them money. I’m not so much interested in the return ON my money as I am in the return OF my money. [...]

By: Carnival of P2P Lending #9 | P2P Lending, Peer to Peer Lending, People to People Lending | News, Information, Borrowing and Lending Strategy

Thu, 05 Jun 2008 19:21:15 +0000

[...] presents Why Borrowers With Bad Credit Pay A Higher Interest Rates posted at [...]

By: Ron@TheWisdomJournal

Ron@TheWisdomJournal — Wed, 14 May 2008 12:46:16 +0000

This is a great post.
People tend to think that lenders are unfair to borrowers with poor credit. The reason they have poor credit is because at some point, they were unfair to other lenders!

By: Pinyo

Pinyo — Wed, 14 May 2008 11:21:19 +0000

@Aaron – No problem. In the end, I think the definition will vary depending on the individual.

@Make Friend – Perhaps some sort of progressive interest rate based on the current payment history would be a fairer system. Say your credit score starts you at 20% interest rate. As you pay down you debt on time, your interest rate is progressively adjusted down as well.

Of course, the scenario is Utopian in nature, so it will never get done.

By: Make Friends, Earn Money

Make Friends, Earn Money — Tue, 13 May 2008 19:06:39 +0000

I think this is a very complex issue, but financial institutions could help address the issue of bad debt simply by reducing the amount of interest that they charge. The problem here is greed and the pursuit of profit at the cost of long term social investment.

Whilst clearly there are some individuals who will always abuse the system and ruin it for the rest of us, i am convinced that the majority of people get into debt because they are unable, not unwilling to keep up with spiraling interest payments.

It is interesting that credit unions or co-operatives which are set up in poorer areas and charge a fraction of the interest of banks and other financial organisations have a tiny number of people who default on loans and yet they deal with some of the people with the worst credit ratings. Why is this? Because repayments are more manageable and achievable unlike greedy banks.

I’m not anti profit at all, indeed it’s important for future investment, but I am anti extortion, and in some countries this would be a criminal offense.

By: Aaron Stroud

Aaron Stroud — Tue, 13 May 2008 17:21:44 +0000

Pinyo, thanks for the honest answer. I think your difficulty drawing the line between “fair” and “predatory” is something we should all keep in mind (especially the gov’t).

Regarding debt, I’m not a hardliner like Dave. Although I’d prefer not to be in debt (I have no problem with our student loans that are locked in the 3-4% range), I recognize that people’s comfort levels differ and that sometimes you can end up richer by going into debt (college, medical treatment for your kids, etc).

By: Pinyo

Pinyo — Tue, 13 May 2008 11:49:27 +0000

@B Smith – Thank you. I don’t blame the people though. Our educational system is really lacking in this area and you can’t really count on parents to effectively teach personal finance to children.

@Llama – Exactly.

@Will – Yes, it’s oversimplified to get the point across. The article would be interesting if I add every little detail.

@Aaron – That’s a really philosophical question. I pondered on it for a while and I really can’t come up with a good answer. However, I disagree with your statement because certain types of lending allow borrowers to achieve certain financial goals that would be unattainable without borrowing — i.e., starting most businesses, buying a home, go to school, etc.

@Mrs. Micah – Thanks. I think that’s a good policy. Although the number looks nice when you can push interest rate to 13% or more, I think the result is the same with lending to borrowers with good credit — just less drama.

By: Mrs. Micah

Mrs. Micah — Mon, 12 May 2008 18:31:53 +0000

Nice illustration. That’s why, if I ever choose to go P2P, I plan to stick with people who have good credit. But I’m still waiting for things to sort themselves out. Then we’ll see.