Credit card interest rates are so high, averaging 18.04% for all new offers, because credit cards are unsecured and have no set timeframe for full repayment. Credit cards are riskier than other borrowing methods as a result, and issuers need to charge higher interest rates to compensate.
With mortgages and car loans, on the other hand, the house or car can be repossessed and resold by the lender when the balance is not paid off. But if a cardholder defaults on a credit card payment, there’s no guarantee that the lender will ever get their money back.
Legal caps on interest rates – or the lack thereof – also affect credit card APRs. In 1978, the Supreme Court ruled that card issuers could set their credit card interest rates based on the usury laws in the state they’re headquartered in. Usury laws put a legal cap on the interest rates that can be charged on a line of credit, but not all states have them. This means that banks can avoid usury laws by strategically choosing the location of their headquarters. They can then export high interest rates to states that normally wouldn’t allow them.
Finally, credit card interest rates are so high in part because people agree to pay them. Card issuers will continue offering these terms as long as consumers continue accepting them.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines
. This question was posted by WalletHub.
Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.