A Foolish Take: Why Are Credit Card Interest Rates So High?
A recent survey by ValuePenguin found that the average annual percentage rate (APR) for credit cards ranges from 15.99% for travel rewards cards to 20.90% for cash back rewards cards. Meanwhile, you can get a standard 30-year mortgage today for around 4%.
The reason interest rates on credit card balances are so high is that the loans underlying those balances tend to default at a higher rate than other types of loans.
The Federal Reserve estimated earlier this year that 13.7% of the dollar amount of credit card loans at the nation's biggest banks would go into default if the economy dives into a "severely adverse" economic downturn akin to the financial crisis. That compares to only 2.2% of the dollar amount of residential mortgages on big banks' balance sheets.
Source: Fool.com
