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Yeah, because lenders are going to turn down 10% if they can't get 29%...
10% guaranteed is more than enough to motivate lenders.
If you are credit worthy and lenders can give you 10% they will, because there is another lender out there that will give you 10% if you are good for it. If you are getting a 29% interest rate it’s because you are a default risk, it’s unsecured, a short term loan, or any combination of the 3.
Rates just don’t come out of thin air. It’s based off of risk. If you cap rates at 10% then the only people who will get credit at 10% are going to be wealthy people.
That's credit card interest...
And we're talking about credit cards...
At least I am, and everyone else. Because this is the comment section of an article about credit cards.
If you're talking about something else, maybe you should let people know? Or at least be understanding when others can't read your mind.
I’m talking about all types of credit, including a line of credit like a credit card. It’s unsecured so the rate is way higher. If you capped the rate on credit cards then people who are higher credit risk won’t be given credit.
People who are credit worthy get spammed with all sorts of credit card offers for low APR cards. With an high 700-800 credit score you could score a line of credit at 10% APR but you’d have to go to a bank or credit union to get it.
It's never truly guaranteed, even if there's collateral.
Guaranteed as in rate of return for the lender....
Like, yeah, there's some breakage, but your return on investment is going to be close to interest rate.
Buy a stock and you might beat 10%, you might not.
Buy debt, and you get your interest or sell it to a third party for a smaller amount, likely still more than the amount loaned, just piled high with interest.
It's not guaranteed because a lot of people default of their loans.
And collateral can lose value after the loan is issued.