Banks, you make no sense

(To give some background, my credit is like many Americans' -- I have never paid a bill late in my life and all my accounts show as "paying as agreed," but I have a lot of debt.)

A few weeks ago, I tried to refinance my car, which is currently worth about 150% of what I owe on it. I tried for any combination of lowering the rate, extending the term, or taking out the full market value and getting cash back. I wanted to do this because we have a healthcare loan that's going to charge us horrendous retroactive interest if we don't pay it off by next month.

I got a bunch of letters saying the banks wouldn't refinance my car because of too much debt. As in, they were not willing to even let me use equity I already have in it and close out the old loan and have me make my exact same monthly payment that I'm obviously capable of making (or a smaller one) to them instead. They decided I was at too high a risk of not paying them, despite having never not paid a bill in my life.

On a whim, I decided to try opening up a credit card with a 0.0% interest rate for a year, thinking I could pay off my medical debt this way. This seems to be a much riskier move on the banks' parts, because the amount I could put on the card isn't backed up by anything and can't be towed away, plus it would be expanding my entire available credit since it wouldn't close out the old loan like a car refinance would.

The card and all its fine print showed up today. Not only did they approve me, but the limit is high enough that I could damn near put the car on the card, were that not a stupid financial move and questionably legal. I guess it makes sense that banks are counting on people to take forever to pay the card, thus eventually paying them a lot of interest, but still, it's odd. The same bank was not willing to close out my car loan and accept the same payment I'd been making for three years, but they were willing to give me almost as much money on a credit card with no interest and a 3% balance transfer fee. They're actually going to make less money off of me this way.


Jerry said...

It does make sense if the bank assumes that everyone, regardless of credit history, is going to carry a balance and only make the minimum payment forever and ever. This requires that you either 1) lack willpower, or 2) suffer a financial emergency. Given the economy, 2 is becoming much more likely, and it sounds as though you had a close call (the healthcare loan) yourselves.

eeka said...

Sure, it totally makes sense that they assume this, but it also would make sense that they'd assume that if I can pay a car payment of X dollars on time every month, then I can similarly pay a replacement car payment of less-than-X. In fact, I'd be more likely to pay it, yes?

It doesn't make sense that the same bank assumes I can pay one more credit card at at least the minimum, but can't pay a car payment that would replace my old one. (Again, with a credit history of having always paid every bill on time in my life, even if there are times that I pay minimums on my credit cards.)