What is High Interest?
High Gains for financial transactions
The concept of High interest
basically deals with paying larger amount of interest with respect to principal comparatively to low interest
schemes. When banks give out loans they look at the capacity of the borrower
to return the money. They look at the risk involved in giving out money to the borrower. If the borrower is considered a risk, he may not return the money.
High interest credit is usually given to individuals who have bad credit, and are high risk to the lending institution.
The bank still gives borrower the credit but charges a very high interest rate. This ensures that the bank will get high returns if the borrower does repay the money. This is done so that these high risk borrowers
are left in the lurch since no bank will give them credit based on their capacity. Credit cards also may be of the high interest category based on the history of repayment of the customer.
High Interest savings account
There are numerous offers from Canadian banks to open high interest savings account. They have a low premium and offer better returns than traditional accounts. These accounts are based on the APR
rate. This rate gives the yield
of the account after a year.
It is expressed as a percentage and it is multiplied by the principal to get the amount in the account. There is no need for any interest rate. These accounts have a flip side as these accounts depend on the state of the economy. If the investors who borrow from banks default then the savings account interest will be affected. The state of the investors is related to the health of the companies in which they invest and also stock market. The account is vulnerable to fluctuations in the financial market.
High Interest Credit cards and loans
High interest Credit cards allow you to make lots of purchases but they charge a high interest when you don't repay the money before the stipulated date. These cards are highly useful when a big credit limit is needed. These credit cards are allow a pain if the payment is not made and it causes the interest to rise steeply.
There are options for customers to change from a high interest credit card to a low interest card. The outstanding amount in one card can be transferred to another low interest card so that the amount can be paid in smaller installments. Most banks offer this facility and lots of shrewd customers take advantage of this scheme. These cards trap the customers with offer and make them spend more. Balance transfers
are also the rage as there are ways to pay the outstanding in installments.
Mortgage rates however are usually not high interest as the principal itself is very large in most cases, and these debts are secured with the property. There are ways to refinance
high interest loans after a period of time. These loans are taken if large amount of money is needed in short time or if it is a high risk borrower. High interest rate accounts or credit cards have their advantages but also have a flip side. They should be managed properly or it will lead to a deteriorating financial situation.