The Banking Royal Commission has faced a lot of scrutiny, especially after they released their interim report.
The report left so many dismayed especially with the greed being laid bare by a number of financial institutions.
It came with a lot of bad things such as selling credit insurance to entities who could never collect and charging for higher mortgage packages without offering the promised discounts.
All of this has been dubbed to be bad for the people, and all these exploits are listed below with some financial traps revealed. Read on:
The first trap is by reducing the amount of money you pay for a mortgage when it is too high.
For some time, lenders only adjusted your repayment amount if the interest rates increased.
This was logical since the remaining amount was not a direct reflection of your liability. However, lenders are now taking the approach of reducing repayments to a certain level.
This is bad since the interest rates apply across all the repayments and the only way that they should be adjusted is upwards.
You should try and avoid this and set a high repayment rate to avoid facing the wrath of paying huge interest.
For a long time, credit cards have been the reason behind the financial difficulties experienced by people.
Here is where some of the financial traps come into the picture.
It is advisable to avoid withdrawing cash with your credit card or paying for purchases with it unless it is really urgent.
Studies reveal that credit card transactions accrue interest of about 20% and this is staggering.
This is exceptionally high and proves that credit cards are terrible since you pay a lot for the advances.
We are still on credit cards, and they are a tough prison to get out of. Look at examples of a credit card that would take one more than a hundred years to pay it off.
The interest rates on these cards have remained standard over the years despite the official rates falling slightly.
However, this is not the problem since the lenders set minimum repayments at two per cent of your balance, something that could make your debt increase gradually if you pay this
These traps entail two pitfalls that should be avoided when dealing with credit cards.
Do not use your card for new spending since the interests are used to cover the interest-free days.
Furthermore, do not pay off your card balance during the interest-free days since you will make up for the money lost.
This is risky for users who might be oblivious to the implications and issuers should be required to tell customers when their interest-free period is about to elapse.
This is the incoming one, and it is set to define the borrowing fray in the coming years. Setting the borrowing rate based on one’s risk is a huge trap.
It is already applied in the peer to peer lending seen with personal loans.
Banks are expected to start sourcing for information about an individual in a bid to try and set personal borrowing rates for you.
This is bad especially if your credit report is terrible due to a couple of financial struggles as you will have to pay more.
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