Why Credit Card Interest Rates Are Set to Rise

Despite central banks reducing base rate to an historic low, credit card interest rates are set to rise. A report by PriceWaterhouseCoopers claims that existing business lending models are not sustainable due to the level of bad debts, funding constraints and an extremely difficult economy. It is expected that interest rates will rise, credit card annual fees will become far more common and 0% balance transfer cards will become increasingly hard to find. Furthermore, it is anticipated that cards are likely to be transformed from tools of borrowing into just a method of payment.

Credit Card Interest Rates – Delinquency Rates, Not Central Bank Rates

The rate set by the Federal Reserve is not the main determinant of what credit card rate lenders will charge. The figures are normally determined by the level of unemployment and the increased probability of default. According to a July 2009 article in Reuters, charge card delinquency rates have soared to 6.6%. Given that the money spent on charge cards is unsecured and can be discharged by filing chapter 7 bankruptcy, lenders are trying to protect their balance sheets by charging their customers more.

Credit Card Rates Rise – 0% Balance Transfer Cards Disappear, Credit Card Annual Fees Return

Richard Thompson, a partner at PriceWaterhouseCoopers, stated that: “Over the last 12 months there has been a cooling passion for plastic – credit card borrowing has fallen by 3% to £64 billion and the number of cards in circulation has fallen by 8%.” Given the hit most financial institutions have taken from the levels of delinquency, lenders are going to be looking to repair their balance sheets by charging higher credit card rates, annual fees and eliminating free introductory lending for all but the most lucrative customers.

Borrowing Money – Keeping Credit Card Interest Rates Low and Avoiding Credit Card Annual Fees

The lending process is going to become increasingly actuarial with far more interest bandings for those who seek to borrow money. Even those with existing credit agreements are already being reassessed. With legislative changes beginning to come into affect in the U.S., margins are being cut to a bare minimum. Only those with good credit will receive the best credit card rate offers from lenders so it is important to improve FICO credit score ratings. Lenders simply aren’t prepared to take the same chances they were a couple of years ago.

Sources

(9 November, 2009). “Credit card rates set to increase.” AOL Money.

Jones, Brent. (8 July, 2009). “Consumers falling behind with payments at record pace.” Reuters.

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Tags: Card Interest, Card Interest Rates, Interest Rates, Rise   Posted in Debt Consolidation