Why Do Credit Cards Charge High Interest Rates?
The interest rates consumers pay on their credit cards are often much higher than the interest rates they pay on a mortgage or personal loan. High interest on your charges can make paying off your balances seem impossible.
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Facts
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Credit card companies often operate out of states that do not set laws regarding the amount of interest businesses are allowed to charge. This allows the companies to legally charge high interest rates (18 to 24 percent) to consumers.
Considerations
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The interest rate a credit card company offers to you is based on your credit score. The lower your credit score is, the more likely you are to have a higher credit card interest rate.
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Types
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Secured credit cards often do not require a credit check and are geared toward borrowers who have had past credit problems. Because of this, the interest rate on secured cards is often much higher than on standard, unsecured credit cards.
Features
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Different interest rates may apply depending on how you use the card. Most credit card companies charge customers a higher interest rate for cash advances than for purchases.
Warnings
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A credit card company may raise your interest rate if you miss a payment or exceed your spending limit. In some instances, a company may raise your rates if it deems the current state of the economy is a threat to its business.
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References
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- Photo Credit Image by Flickr.com, courtesy of Andres Rueda
