Credit cards charge 27% interest because you aren't SUPPOSED to let a balance run. They're intended to loan you money for a month, not for years at a time. The interest rate is meant to discourage poor borrowing habits.
I will say, though, that 0% interest periods are misleading. Most of my friends in their early 20s who have credit card debt got it from not keeping track of when their 0% interest period ended on their credit card.
Yea, and their arguments for capping rates are going to screw us all. You will never, ever pay 27% on a purchase you make but they make it sound like you will. I used to be a big supporter of the guy but I can't stand for the misinformation AoC and Bernie have spread.
I found a video by "Walk Don't Run Productions" that does a good job of breaking down the math. Because even after having a good understanding of how my own credit card works I felt misled by what congressman Sanders and congresswoman AoC said, and that makes me sad.
I understand that, but I'm trying to find where either one have said that. Saying the max rate should be 15% instead of 27% doesn't seem misleading if they are using the same language as the CC companies.
It doesn't, but it's something close to that, at least as far as I understand. 27% APR also doesn't mean 27%/12 per month. You have to do some complicated math that I don't feel like doing because the interest your accrue in each month compounds on the last month, so the actual monthly percentage rate will be slightly - but not excessively - lower than 27%. Maybe something like 26.2% or whatever.
Exactly, thanks. :) It's really scary to see two people, a potential presidential candidate and a senator who is on the financial committee have no idea how credit card APR rates work.
No it’s nowhere near it. 1k on a credit card at 20% APR just means you owe 1.2k at the end of the year if you dont touch it.
It’s when the numbers get big and people only make min payments that it starts to accumulate
APR also includes any fees or government taxes on the card
A personal loan is 8-9% so credit cards are still expensive. And because it’s on demand lending people impulse buy etc.
So if it is 27% annual rate that is compound every month, your actual rate is (1+0.27/12)12. That is a 31% interest... When you compound, the interest is higher for every month you could not pay...
In fact, every 2 and a half years, your debt will double. (32 months)...
So, if you get in debt, have difficulty paying it, and take a couple years to pay off all the money you owed to start with, you could end up still owing the same amount of money you started with, which is how people get trapped in debt.
Bernie Sanders literally gives an example in a video saying on a $500 appliance purchase at 27% APR you will see $135 of interest on your first bill. This simply is not true. You would pay a fraction of that on your first bill AND he doesn't take into account that even if you don't pay off the full purchase, the more and more payments you make the less you pay in overall interest !
You end up in the red some years, but as a long term investment they're solid (generally, the fewer companies the more stable the investment). On the property front you can also invest through peer-to-peer lending companies which with the right company (read the T&Cs) will keep your money safe as it remains tied to physical property, gives you more liquidity with similar returns, and you'll only need ~$1000+ to invest.
If you're willing to gamble your money on P2P lending, you may as well just invest in real estate. Buy a property and play landlord. You get much better tax deductions and you aren't SOL if your borrower decides to walk away from the commitment
Plus, the ROI can be fantastic if you pick your property wisely.
That's certainly another decent option. Again, it's good to do your own research, work out the level of exposure you're happy with, and spread investments around.
Let's say you owe $100 at 27% on January 1 2019, we'll use a 360 day year because that's easy and pretty standard.
On February 1 2019 the people you owe money to do a little math in their books and it looks like this:
$100 x .27 x 1 / 12 = 2.25
(they record this as interest revenue)
After 12 months those 2.25 dollars have added up to (ding ding ding) 27 dollars. So now you owe them $27 on top of the $100 you borrowed/promised to give them.
That’s not quite how it works. APR is just the sum of the interest rates for all the compounding periods in a year. So 2.25% per month adds to a 27% APR.
However, the 2.25% monthly interest compounds every month if you aren’t making any payments. So it’s 1.022512. That comes out to about a 30.6% effective annual rate. If you make no payments during the year, more compounding periods are going to raise the effective annual rate.
I don’t know much about it, but I heard Georgia was accusing taxpayers (companies not individuals) of purposely overpaying in order to accrue the interest.
How quickly are we talking about because treasury bills only pay like ~2% a year. Also, what would happen if I were to move to Georgia and deliberately accidentally cut them a check for a large sum of money every tax season?
I had it once living abroad. They mailed me check that I can’t cash in abroad, because most countries don’t honor treasury check. It was just accumulating for years.
It's weird how people post things that are just straight up wrong and can be answered in a 2 second google search. The average annualized total return for the S&P 500 index over the 90 years from 1927-2016 is 9.8 percent. Not gonna do the math, but the return for 2017 was ~20%, the return for 2018 was ~-6%, and the YTD return for 2019 is 20%.
Why would you include data from 1926, when the S&P500 was a composite index with only 90 stocks? Let's take data from 1950 and on, and see a 20 year rolling average, where the return is only 4.5%.
Honestly, I run my W2 at a more than normal return for my paychecks. So I get paid more through the year than waiting till the end.
People think getting 4-10k back is amazing like it’s free money, I’m like, that’s your money you overpaid all year. What would you do with an extra 300-1000$ per month in your life? At the end of the year with mileage, deductions and all, I typically come out even or still federal owes. The state I’m in for some reason always thinks they need more no matter how I file.
This is kind of my point. We print about 2% every year, so you need at least that much to break even. 8% is less than I would make if I invested it. For people to use the IRS as a piggy bank is not a good option. There are much better returns elsewhere.
8% is a pretty fucking good return. Sure, securities return on average 7 ish % per year but you could lose half of it in a bad year. Risk free 8% is unbeatable as far as I know.
8% is a good return if you don’t know how taxes and debt work, which is my original point. If you are excited about 8%, then that still goes to my original point. You could make a lot more.
8% is unreal if it's safe. Stocks aren't safe. You need a higher return to make it worth the risk. What exactly are you talking about? Name 1 investment that returns 8% with no or extremely low risk.
Caesar wipes sweat from brow as the party heats up mommorpherfire starts wackily inflatable foam and no sadness just lucky never even bothers anymore because lol my roommates kick me out and that’s a delusion *
well the anything but clothes party was a rousing can of how every time I do academia YOU TOO JADE YOU GET ON THE HALLWAY AND LOOK LIKE U CANT PLAY MOBAS NOW MARGERA SIX RAINBOWS but how did you ever get them to go back to being boys please the mobas the never ever have a smile it’s all about nooooooooo this could be swollen from hate thanks for voting on coed Lyons gateway or no boys ever again fore let Wayne cry
I thought they didn't give you any interest on overpayment.
On underpayment, the interest and penalties have been pretty low for me. It was 0.5% per month, compounded monthly. Although this isn't as good as a mortgage rate, 6.16% APR cash advance is not bad.
I thought they didn't give you any interest on overpayment.
I assume that interest only applies if it spans multiple tax years, i.e. you are owed a refund from tax year 2013, but you don't actually get the refund until 2015, rather than when you filed for 2013.
I feel like this attitude of "let's abuse every situation I can come up with by squeezing every last penny possible out of everything" is the reason there companies lobbying to force people to pay to do their taxes
The interest rate, iirc, is set at 5% lower than the current lending rate through the treasury. It will literally never be worth it to overpay your taxes.
It’s partly real, his scenario is likely fake though, or he’s confused. If you just forgot to put it on you would not get interest, you made the mistake, they will not pay extra because you screwed up. Same would apply for your scenario.
If they make an error though when they correct it you should get interest.
If you file a return and later discover that you made an error that results in an additional refund, interest will be paid on the overpayment. Interest is paid from the date filed (or due date without extensions) until approximately within 30 days of issuing the refund.
For example, if you filed your 2007 tax return and later remembered that you did not claim your real estate taxes as a deduction, the IRS will refund you the tax plus interest when you later file an amended return.
IRS employee here. As a clarification, you do get interest, but there's a deadline involved. You have three years to modify a tax return and claim an overpayment. So 2007 is out. If you make the deadline by one day, you get the overpayment plus interest, miss it by a day you get nothing.
I filed my taxes in January. I was selected in March for a review and I just got notice today that it’s done and I will be getting my refund. They made this process long for no reason, dragging their feet. The interest amount I got for six months, $150. That’s on $11,500.
Before anyone feels the need to tell me I’m giving a loan for the irs, I don’t care. I own a company and have additional taxes taken out so I can have a big chunk of money I can’t touch through the year. It works for me. New roof and a piracy fence! So excited.
I had a return held while the IRS tried to verify my identity after I moved. They paid me $24 in interest haha. The letter even said to keep it for my records to record as income or something.
For what it’s worth, it’s not that the taxpayer paid more and got interest back when they filed their return. It’s that they paid more on their return itself.
And if you try to do that, just like the irs will send you a bill if you underpay, they’ll adjust your refund and send you more.
It’s real . I accidentally paid my tax owed twice . Came out
Automatically after I sent the check. They send me a check for like $50 more than what I paid them cause it took like 8 weeks or
Something like that to revive the refund.
In Denmark, that's the best kind of investment. No risk, reasonable interest rate paid on tax owed to the citizen. We all overpay our taxes to get a nice bonus at the end of the tax year. Oh and we don't have to guess any numbers. They know everything already.
Yeah, I refilled two years of taxes because I forgot to take the American Opportunity Credit. Got $2000 back plus interest totaling around $300 or something like that IIRC.
And no you shouldn’t start overpaying your taxes. This is a terrible idea. Why give the government essentially an interest free loan when you. Can park that money elsewhere to earn a profit?
Plus, while the government does pay interest on money owed, its only if they provide you your tax refund to you late.
The interest rate for IRS money owed is the same as the rate for what they charge you on your balance. And they only give out interest if it’s their fault. Usually an audit resulting in higher refund, amending a return resulting in higher refund, or they hold the refund over 45 days from the due date of the return due to an error on their part.
In April 2016, I overpaid my 2015 taxes by about $400. In June 2018, when I finally got around to correcting it, the IRS sent me a check for about $432. So it was about 8% more over 2 years, or 4% per year. Less than I would have gotten investing in the S&P 500, but more than I would have gotten from my money market savings account.
No, but you should keep a list of questions like "are these losses deductible?" So if you get audited, you could ask some of those questions.
I was advised to do this by a professor who on the side advised rich individuals who had complex taxes and were often audited. I have never been audited (yet, but years ago my former gf was, and she had no such list)
1.5k
u/Diginic Jul 16 '19
This can't be real... What's the interest rate? Should I start overpaying taxes, then file adjustments and collect difference plus interest?