See: Subprime. See: Credit Card.
If you're a bank giving the right to a candidate with virtually no bank account cash, a minimum wage job, and no history of paying bills on time, wouldn't you be nervous about giving them a piece of plastic with a mag stripe on it that lets them buy virtually anything? Well, of course you would. So you'd limit them severely as to how much they can spend before having to pay their billls. Like...think: $1,000 limit. That way, if they go totally Greece on you ("I can't pay my bills!") then you have lost a grand. You're not dead; you'll live to loan another day.
And to make up for the highly likely case that, say, 1 in 10 will default or cause problems, you'll charge them over 20% rates on their credit cards when they do borrow money from you, i.e. when they don't pay off their balance each month.
That's the bad news. The good: many prime borrowers started out as subprime. They paid their bills dutifully on their cards month after month, and established credit and trust, and ended up just fine down the line.
The ultimate: the Black Amex Card. Try not to leave home without it.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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