The Mystery of High Credit Card Interest Rates: It's More Than Just Defaults
2025-04-01
Why are US credit card interest rates so high? A study of 330 million credit card accounts reveals the answer: while default losses contribute, high rates also reflect undiversifiable downside risk during economic downturns, significant pricing power of credit card banks, and substantial operating expenses (especially marketing). Even the highest-credit-score borrowers pay spreads far exceeding other loan products, indicating a systemic default risk premium baked into rates, coupled with the high costs of running and marketing credit card businesses.
Read more