September 14, 2007, Newsletter Issue #81: Traditional Bank Loans
Tip of the Week
Traditional banks used to offer short-term loans and many still do. However, short-term loans is not where the money is. The interest rates on short-term loans through traditional lenders are relatively low compared to credit card rates. Plus, once the loan is paid off, there's no guarantee you'll continue doing business with the lender. That's why lenders today prefer to hook you up with a credit card underwritten by their bank. Credit card rates are higher, and there is more of an opportunity for the bank to charge you for things like late payment penalties, over-limit fees, and balance transfer fees. And, because of the open-ended nature of credit limits, you can continue to spend on an ongoing basis assuming you have not reached your credit limit. That means you may never pay off your debt, and that means more interest income for the bank.
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