Where is the logic in doubling a credit card interest rate?

Question

if the customer couldn't make the payments under the original rate?

Doesn't jacking the rate up out of sight just discourage the customer from making any payments? Why is this any different than loan-sharking, just because a real bank is involved?

Answer 1

Lenders typically "mark to market". That is, they adjust rates based on your current borrowing characteristics, not the ones that existed when they first extended you credit. I'm sure in some circumstances it may be counter-productive. On the other hand, perhaps it will cause you to draw down other, cheaper, sources of credit and reduce their exposure -- which is no, doubt, one of their objectives.

Answer 2

Doubling the interest rate is actually the punishment for not paying on time. They're trying to show you that credit is a priviledge and not a right. If you're unable to pay in the end, they'll just get rid of you and replace you will 100 clients.

Answer 3

Loan sharking is referred to as usury and requires a far larger APR to be considered as such.

Answer 4

The logic is that if you ever do pay them, you’ll have extra penalties to pay. I don’t see how it discourages payment, you’re still the one racking up extra fees  and hurting your credit score for every month you don’t pay.

What I don’t get is why they can raise your rates because of things that had nothing to do with the credit account.  I bought house last year, and my credit card’s interest rate doubled without warning. I’ve been fighting to have that fixed.  It’s BS!  

Answer 5

That's a good question and this is why you should at LEAST make your minimum payments on time! If you do this once and your bank doubles your interest rate, call them and try to get it back down and if they refuse, pay this card off and close the account!

Most reputable credit card companies will not double your rate until you are 3 payments late in a 6 month period in my experience.

Set up an account where you keep money in it at all times and arrange for automatic payments to come out of it. You can always add to your payment at any time!