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So seems were all judge by a score system and the interest rate is base on that. With that being said, what is the purpose of jacking up a interest rate on somebody vs just having a flat bottom rate for everybody? Pro and con..
huh ? are you talking about a credit score and a loan ? if it is , then like anything in life , those that are a higher risk have to pay more to cover that risk .
if you have already demonstrated an inability to pay or lack of want to pay or both , you should pay more , a lot more or perhaps not be given a loan at all . .
So seems were all judge by a score system and the interest rate is base on that. With that being said, what is the purpose of jacking up a interest rate on somebody vs just having a flat bottom rate for everybody? Pro and con..
You’re free to loan out your money at a flat rate to anyone with a pulse.
For the other people with capital, they probably feel more comfortible pricing risk into their lending.
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Quote:
Originally Posted by hitpausebutton2
Just general.. What would hurt if their is a flat rate? You still make your money back plus some?
No incentive?
You make your money back plus some only if the creditor pays you back. The better the credit the more likely they will pay it back. There is risk to any loan, but the lender is more willing to gamble if the potential reward is larger. My credit union actually lowers the interest rate as your credit score goes up over time. When a car manufacturer offers 0% interest it requires very strict credit qualifications, but people with lousy credit may still be able to buy a car - at 10% interest.
Just general.. What would hurt if their is a flat rate? You still make your money back plus some?
No incentive?
it would hurt plenty . no one wants to loan high risk people money for low rewards . why risk the money when you can give it to the high score people who demonstrated an ability to pay and a want to pay . i certainly would not loan a penny to a low score person .
Just general.. What would hurt if their is a flat rate? You still make your money back plus some?
No incentive?
your score basically represents your history of paying back debt and your ability to pay back debt. so if you have a low score, there is a good chance the creditor wont get paid back. if you had one flat rate, then lenders would just have no choice but to deny credit to people with low scores.
it would hurt plenty . no one wants to loan high risk people money for low rewards . why risk the money when you can give it to the high score people who demonstrated an ability to pay and a want to pay . i certainly would not loan a penny to a low score person .
So why not charge them a higher rate on interest since they have the ability to pay it back. So you bank on higher risk folks vs not making any interest on "good score"?
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