If the feed cuts the interest rate, shouldn't the rates on credit cards, mortgages, coupé loans etc run down too?
Since the fed keeps adjectives the interest rate, shouldn't the credit card, mortgage, and car loan companies cut their rates too? How should you request for them to do that? It doesn't make sense to me that these companies would hang on to their customers locked in to the current rates, especially if they are on the verge of defaulting.
Answers:
They don't cut rates based probability of defaulting. Rather they do the opposit and try to rake in as much cash as possible from clients/business lines.
NO!
Example:
Mortgages
Banks make 3% on the loan.
The investors who provide the banks money for the loan make 3% on the loan.
Do you muse if I had 1 million $ I would only gross 3% on it. “NO”
So the rates will not go down.
No - the Federal Reserve singular controls the "Fed Funds Rate" which is the rate that the fed charge banks who borrow funds from other bank (through the Fed) and is a short-term rate. Market Rates - car loans, credit card, mortgages - are based stale of other rates (US Prime, US Treasuries, US LIBOR, etc..). As the Fed decreases or increases the Fed Funds Rate, then it is up to income market supply and demand to move these other rates. In the current 'credit crisis', flea market rates are not behaving as they have contained by the past, mainly due to bank unwillingness to lend money. If there is no supply and high emergency, then the price of the commodity (in this case interest rates) go up (or does not come down). In addition, banks are reluctant to use up credit card rates on those cards not tied to a market rate since the spread on this business is so high (i.e. profitable) - why would they want to dampen this - they'd only be reducing their own income?
Related Questions:
Needing a mortgage loan beside smaller number than model credit??
My scores are not that great, ranging frm 576-637 due to some things within the past. I have be working on them for the past year and they have come up some. I own 3 credit cards with combined balances of smaller...
Answers:
They don't cut rates based probability of defaulting. Rather they do the opposit and try to rake in as much cash as possible from clients/business lines.
NO!
Example:
Mortgages
Banks make 3% on the loan.
The investors who provide the banks money for the loan make 3% on the loan.
Do you muse if I had 1 million $ I would only gross 3% on it. “NO”
So the rates will not go down.
No - the Federal Reserve singular controls the "Fed Funds Rate" which is the rate that the fed charge banks who borrow funds from other bank (through the Fed) and is a short-term rate. Market Rates - car loans, credit card, mortgages - are based stale of other rates (US Prime, US Treasuries, US LIBOR, etc..). As the Fed decreases or increases the Fed Funds Rate, then it is up to income market supply and demand to move these other rates. In the current 'credit crisis', flea market rates are not behaving as they have contained by the past, mainly due to bank unwillingness to lend money. If there is no supply and high emergency, then the price of the commodity (in this case interest rates) go up (or does not come down). In addition, banks are reluctant to use up credit card rates on those cards not tied to a market rate since the spread on this business is so high (i.e. profitable) - why would they want to dampen this - they'd only be reducing their own income?
Related Questions:
Needing a mortgage loan beside smaller number than model credit??
My scores are not that great, ranging frm 576-637 due to some things within the past. I have be working on them for the past year and they have come up some. I own 3 credit cards with combined balances of smaller...