How to Borrow Money and Avoid Higher Interest Rates
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What is the main topic discussed in this episode?
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Here's your money briefing for Thursday, September 21st. I'm J.R. Whelan for The Wall Street Journal. Although the Federal Reserve held interest rates steady yesterday, borrowing money is still difficult or out of reach for many people.
How did recent Fed actions affect consumer borrowing costs?
So with average credit card interest rates above 20 percent, it's very, very expensive to carry a balance right now. And banks know this and banks know that more consumers are becoming more budget conscious and they're watching their bottom line and they're spending closely as inflation keeps going and interest rates rise.
We'll talk to Wall Street Journal personal finance reporter Amani Moise about lower interest borrowing options after the break.
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Why are credit card APRs hovering above 20% and how are they calculated?
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Compared to a year ago, it's a lot more expensive for consumers to borrow money. But they do have options that can ease the financial pressure of higher interest rates. Wall Street Journal personal finance reporter Amani Moiz joins me. So Amani, first of all, can you just help us out with some numbers? The Fed held interest rates steady yesterday in the five and a quarter to five and a half percent range.
What does APR include and how can it help me compare loan offers?
But we see credit card interest rates often above 20 percent. How do those numbers get so high?
That number you just cited is the cost that banks pay to borrow from each other. But credit card loans are considered much riskier, which is why their interest rate is so much higher. And credit cards today usually come with a variable rate, which means that they tend to move up along with the regular bank interest rates.
And we often see the acronym APR in descriptions of loans. What does that stand for and how does it help consumers understand how much it'll cost to borrow?
APR stands for annual percentage rate. Lenders are required to state the cost of borrowing as an APR because it's thought of as a broader measure than just a regular interest rate because it also includes any fees you're going to pay for your loan or to access that cash in addition to any interest. And it also takes into account the amount of time that you have to repay that loan.
What are earned-wage-access services and do they count as loans?
The APR, in theory, helps consumers compare and contrast different loan types that may have different durations or different stated interest rates. So any bank or company providing consumer loans is going to be heavily regulated and they're required by law to provide what's called a truth in lending disclosure. which tells you exactly how much the APR is going to be, exactly how much you're going to pay over the term of the loan. But for a lot of these fintech products, there's still an open debate as to whether or not their services count as a loan. For example, there's a new kind of company called Earned Wage Access, and what they're doing is giving you access to wages that you've already earned, but you just haven't been paid yet.
So for example, if you get paid... every other week, but you've already worked for half of that pay period. These companies say they're giving you access to those wages now, and the jury's still out on whether or not that's considered a loan.
Since we addressed credit cards briefly earlier, let's get into those a bit more. Some credit card holders are able to pay off their balances each month, but others might carry a balance.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:33
2
How did recent Fed actions affect consumer borrowing costs?
0:33–1:08
3
Why are credit card APRs hovering above 20% and how are they calculated?
1:08–2:01
4
What does APR include and how can it help me compare loan offers?
2:01–2:59
5
What are earned-wage-access services and do they count as loans?
2:59–4:54
6
How can consumers avoid high credit-card interest with alternative card products?
4:54–6:43
7
What are the benefits and risks of buy-now-pay-later and credit-union loans?
6:43–8:01
8
When should I consider small-dollar bank loans or personal loans to lower borrowing costs?
8:01–8:54
Speakers
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