Comments on: Advanta Cuts off ALL New Lending on Credit Cards

By: Josh

Josh — Sun, 17 May 2009 20:30:37 +0000

I’m sure the bank gets commission off of the discount rate charged to the merchant since the bank is able to offer the rewards. It would make less sense to me otherwise.

By: Traciatim

Traciatim — Wed, 13 May 2009 17:49:41 +0000

True, but isn’t that Mastercard/Visa, and not the individual bank? I’m not sure how the fee structure all pans out. Plus, I’m thinking I may have done that wrong now. If I default 12 people per year for 15 years then the total default rate ends up at 18% . . . So I’m thinking 9% would be one every two months rather than one a month in my scenario.

By: Hazzard

Hazzard — Wed, 13 May 2009 17:22:15 +0000

They also make 3%? or so on the purchases, I believe.

By: Traciatim

Traciatim — Wed, 13 May 2009 17:18:40 +0000

I don’t get how credit card companies are making money at all. I ran through an excel sheet that lends 1000 people 10000 each, and then defaults one of those people each month for 15 years. Everyone pays just 3% of the balance each month and the company was charging 19% interest.

At the end of it, the company has received $18,298,862.06 in payments, $635,159.34 has defaulted and they are still owed $573,446.74.

If that same company had taken that 10 million and earned just 5% interest in something safe over 15 years, they would have had $20,789,281 . . .

12 people each year out of 1000 represents a 1.2% default rate (maybe 1.5% if you do it each year overall). According to Capital One in this article http://money.aol.ca/article/capital-one-credit-card-defaults-rise-shares-fall/597515/ . . . “U.S. credit card default rate rises to 9.33 percent”

No wonder they make most of their money off fees and service charges.