Читать книгу Corporate Finance For Dummies - Michael Taillard - Страница 38

All the lending I talk about in this chapter has been at the prime rate, which is the interest rate charged to customers who are considered to be of little or no risk of defaulting. In the United States, the prime rate is about 3 percent above the interest rate that banks charge each other, called the federal funds rate. (Some nations use LIBOR, which is the London Interbank Offered Rate.) For those corporations and people who are considered higher risk, they will often qualify for only loans considered subprime, which are offered at interest rates higher than the prime rate.

Another form of high-interest loan is called the payday loan. The payday loan basically makes loan sharks legal (organizations that offer loans at rates above the legal level and who often have heavy-handed tactics). The payday loan gives you money for a short period, usually only one to two weeks, and charges several hundred percent in annual percentage rate, in addition to fees and penalties. Rather than breaking your knees, as the stereotype suggests, these lenders simply annihilate your credit score and financial well-being. As a result, many states have outlawed these lenders.

For a period between the 1980s and 1990s, subprime mortgage lenders were also very common. In fact, they contributed to the 2007 financial collapse, when many commercial banks were venturing into the subprime market with little or inappropriate risk management. Bottom line: Avoid loan sharks and subprime lenders at all costs, or they’ll ruin your finances and the greater economy at large.