For the sake of change, I (the webmaster) will write a slightly more personal post that we think should be heard here at Moneyscale Finance, because the post shows how high the cost of a bank account credit and credit card credit can be. It can end up in several hundred percent of the loan amount. Despite this, no proposal for any interest or cost ceiling has been made in the Riksdag, as it has been done with regard to high-cost loans, such as fast loans.
The bank credit made the stereo 3.6 times more expensive
Almost exactly 30 years ago (1988) when I moved away from home, I bought something that at least at that time was called stereo, or stereo system, for USD 10,000. I worked at an egg pack and obviously did not have this ridiculously large sum of money. Firstly, I did not earn as well and secondly, 10,000 USD was much more then, a monthly salary type. But I loved music, not least loud music, to the neighbors’ horror.
I managed to get an account credit with Sweetmoney Finance of USD 10,000 and immediately ran away and bought the facility. Yes, it was before the internet broke through, so at that time you could not order things online. My plan was to repay the credit for one for two years and then I could have it as a buffer. Twenty years later (2017) my credit was still not covered, not at all. For twenty-nine years I had to pay interest. Stupid, I know!
Of course I paid off a few hundred kronor monthly, it was done automatically because the money was withdrawn from my personal account every month, but the good thing was that I could use the money I put back on the credit account directly. That’s how account credits work, you have to pay off every month, but then you can use the money again. It can last for the rest of your life, if you feel it.
Covered up all the credit
But twenty years after I took my credit, I finally covered up all the credit. It was a lovely feeling! Out of curiosity, I then began to think about how much I had paid in interest during all these years. It was a bit difficult to come to this because the interest rate has changed many times over the past 30 years, but often I had to pay 70, 80 USD in interest a month. So let’s say I pay USD 900 a year in interest. It does not sound so dangerous, nor is it if I had repaid everything within one or two years as planned, but after 29 years it will be just over USD 26,000.
So in the end I paid USD 36,000 for a stereo that actually cost USD 10,000, it became an expensive j-vla stereo. Also, I threw it many years ago. But don’t get me wrong, I don’t blame Sweetmoney Finance at all. It wasn’t Sweetmoney Finance’s fault that my stereo got so expensive, it was my own. I could have covered my credit after only a year if I really wanted to, but no, I put money into other things instead. It did not feel so dangerous to pay type 70, 80 USD a month for a credit.
So what do I want to do with this? Well, it makes me think of two things:
- It is super important that you do not use all your credit for eternity, whether it is credit card credit, bank account credit or online credit, it can be an expensive story.
- Why won’t bank account credits and credit card credits get a cost cap just like the high cost credits will get this fall?
No cost ceiling for card and account credits
Yes, that’s right, a bank credit or card credit must apparently cost as much as any, while a quick loan won’t cost more than the loan amount itself. After all, it’s not that a credit card, for example, has a cost cap of 100%. It may be understandable because a credit can be used forever, but really there should be a requirement that you have to cover up all your credit after a certain time so that people are not tempted to withdraw their debt forever.
There are probably few who withdraw on a credit for as long as I did, but I still think that this highlights one problem: the problem with loans that have no other requirement than to pay off and pay interest once a month. The repayments are basically meaningless since you can use the money again the second after the repayment.
Quick loans and SMS loans expensive?
The reason I address this is that it is always talked about that quick loans and sms loans are so expensive, but it is rarely mentioned how expensive a credit or card credit can be if you do not think about it. And when it comes to card loans, they usually have a much higher interest rate than the bank credit with the bank, which makes it possible to pass an interest cost even more quickly than the amount borrowed.