8 ms·
Why are credit card rates so high?
- matt3210 2y agoIf everyone suddenly developed self-discipline with money over night, the need for credit cards would disappear. Emergency use? replace emergency credit card with emergency savings and a bit of self discipline. Buy now pay later? wait until later.
- ronsor 2y ago> Buy now pay later? wait until later. Yeah, except the sale for whatever you buy may expire before "later" comes. You'd save more money purchasing now and paying off the credit card a week or two later in that case. It's not always as simple as you describe.
- Animats 2y agoThere will be another sale. Probably pretty soon.
- rlpb 2y agoSo pass and wait for a sale to occur when you actually have the money. Since you save overall, you only have to go through the pain of waiting just once, hopefully in your youth. After that, your savings on the last purchase (in not paying interest) pays for the next purchase, every time, given the same purchasing habits.
- BugsJustFindMe 2y agoThere are other considerations that need to be fixed first. Fraud protection has historically been stronger for credit cards than other means of payment in the US. Likewise cash back vs not.
- abdullahkhalids 2y agoFraud protection is inherently better for credit cards, because you haven't spent your money. The bank has spent the money, and you don't have to pay the bank if someone defrauded the bank. So the bank has every incentive to get the money back. Not so with debit. You spent your own money.
- tossandthrow 2y agoIn Europe they have debit card with the same level of fraud protection - and without credit.
- 20after4 2y agoThat cash back is basically a scam. It's paid for by the credit card processing fees - fees which are charged to merchants and ultimately get passed on to the customer in the form of higher prices. Some merchants even tack on explicit ~$3 transaction fee for credit card purchases, to cover transaction costs. So the cash back is just a partial refund on your credit card processing fees.
- scarface_74 2y agoEvery study shows that people spend more money when using credit cards than when they pay cash. It helps the merchant. Cash also has cost - employee theft, risk of getting robbed while taking it to the bank, it takes more time to handle, etc. If I had a business, I would not accept cash at all.
- sparker72678 2y agoBut once the scam has permeated the system, it's to your advantage to participate, because you pay either way.
- jncfhnb 2y agoLife hack: don’t need things you can’t afford
- okayishdefaults 2y agoI've always wanted to be able to afford.
- zdw 2y agoWorks great with healthcare?
- scarface_74 2y agoYes, people should just stop being poor…
- banqjls 2y agoI don’t live in America but here we don’t use credit cards but we have micro loans and people overwhelmingly sign those for things they absolutely do not need.
- rybosworld 2y agoCredit cards are just a mechanism for micro loans. Loans and debt do not exist just because some people lack discipline.
- tmoertel 2y agoOr get the best of both worlds: buy now and always pay off your full credit-card bill so you never pay interest and get, in effect, a free short-term loan.
- BenjiWiebe 2y agoIMO, that's the correct/normal usage of a credit card. It's how my friends (most of them anyways) and family and myself do it.
- SL61 2y agoI've made thousands of dollars in cashback and rewards from my credit cards without ever paying a cent in interest. That's the main value proposition of credit cards for people who never carry a balance.
- ebb_earl_co 2y agoI have operated under this model for about 10 years now as well. But there was a recent Atlantic article that gave me pause: those rewards are exactly the results of credit card companies’ usury, extracting money from other people. It just doesn’t seem ethical to me (for my parameters) any more. :-/
- omega3 2y agoIt’s also a popular investment strategy to draw the credit ( potentially from multiple credit cards) and invest it.
- nostrademons 2y agoThey're pretty handy just as a form of payment. I've never once carried a balance and never paid a cent of interest to a credit card company, but I use credit cards for basically all of my spending. I get back ~$1000/year in rewards, plus all the convenience of having plastic whenever I want to spend, recurring billing, dispute resolution, fraud prevention, etc. I'd argue that this suggests another hypothesis that the article only partially considered: high interest rates are a cross-subsidy to attract the 40% of credit card users who never carry a balance, and the 40% of credit card users who never carry a balance are a marketing expense to normalize credit card use and make the 60% who do think it's completely acceptable to spend without a thought. I get literally thousands of benefits from the credit card company, and I don't pay a cent. That money has to be coming from somewhere, and I'd bet that it's coming from the 60% of consumers who pay usurious interest rates.
- drdec 2y ago> That money has to be coming from somewhere If you read the whole article, you would learn that it is actually coming from you, via the merchant. Which means you are likely paying higher prices. Now you pay the higher prices either way for the most part, so you may as well enjoy the kickback^W rewards.
- nostrademons 2y agoI'm aware of merchant transaction fees, but they're insufficient as an explanation. Just run the numbers. Say that a hypothetical consumer spends $10K/year. The person who carries that as a balance will pay $2700 at 27% interest, plus $300 from the 3% transaction fee, for a total of $3000, and they might get $200 as cashback. The person who doesn't carry a balance will pay $300 and get $200 as cashback. It's pretty doubtful that all the other services a credit card company provides - fraud detection, chargebacks, billing, recurring payments - cost < $100/year. Maybe if you never submit a chargeback and your card never gets stolen, but at best we're looking at them breaking even on their non-balance-carrying customers and making all their profits off the customers that carry a balance. When you're providing a service to one group at or below cost and making all your profits off another group or another service, that's the definition of a cross-subsidy, even if you do get a token amount of revenue off the first group.
- toast0 2y agoI mean, I certainly don't need credit cards, but given the marketplace, they're often the least expensive and the most convenient way for me as a purchaser to pay for a lot of things. They're certainly not the least expensive way for the merchant, but unless they pass the merchant "discount" as a line item, it doesn't make sense as a purchaser to use anything else. And even then, I think my current card involves the issuer paying me to use it, beyond the discount (4% cash back, but I think merchant fees top out closer to 3%). There's also the delay between time of charge and when the statement is due, although I think the merchant's receipts are also delayed.
- edferda 2y agoCredit cards offer rewards which are really beneficial to people that properly use them. In my country, credit cards are safer because they offer better fraud protection mechanisms than debit cards. Credit cards make it easier to spend money in foreign currencies. I’ve faced issues when trying to pay with a local currency debit card abroad, but I never have faced that issue with a cc. Then, I can just pay my credit card with local currency. Most of these issues are solvable for sure. But as of today, credit cards are way more reliable than debit cards. At least for me. I think credit cards do have very valid use cases today.
- michaelt 2y agoFor better or for worse, we've just lived through several decades of rock bottom interest rates. Sure, you ask someone who's 60 or 70 years old, they'll tell you debt is slavery, you'll end up paying back twice what you borrow, and if you're out of money at the end of this month and you take out a loan you'll be even worse off at the end of next month leading to a spiral of debt. Being disciplined with money is crucial to your family's wellbeing. Because they lived through periods of incredibly high interest rates and saw that stuff happening first-hand. You ask a 40 year old, though? For most of their adult lives interest rates have been below 1% as the economy staggered from one financial crisis to another. Their lived experience is that buying a car on credit has almost no downsides, you certainly don't end up paying 100% more, you pay perhaps 5% more to get the car 2 years earlier. Even college-educated folk who operates spreadsheets for a living could convince themselves it was better not to pay off their mortgage, better to put that money into the stock market. It remains to be seen how modern attitudes towards debt will respond to non-zero interest rates. I hope it doesn't go too badly...
- golergka 2y agoLooking from the outside, it seems that people in the US are always using credit cards as opposed to debit cards, and I don't really see a good reason for that. I have owned credit card in the past, and I could get one easily now, but I don't see any reason to: I have money in the bank, I want to spend it, and I don't need to lend anything. Why and how does _credit_ becomes the first and default way of payment?
- toomuchtodo 2y agoBecause wages are insufficient. Credit fills the gap to survive. Half of bankruptcies in the US are from medical debt, for example. In 2023, approximately 36.8 million Americans, or 11.1%, lived below the poverty line. ~50% of Americans carry a balance, and the average U.S. household with credit card debt has a balance of around $6,065. Credit cards are expensive short term financing. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/ https://www.healthsystemtracker.org/brief/the-burden-of-medi... https://www.stlouisfed.org/on-the-economy/2024/may/which-us-households-have-credit-card-debt https://www.stlouisfed.org/on-the-economy/2024/may/which-us-...
- surajrmal 2y agoMany folks carry zero credit month to month and still use a credit card. You're giving away free money by not using it.
- toomuchtodo 2y agoYou're assuming these consumers of credit card products can pay off their cards (transactors) when the data shows, broadly, that the consumer is stressed financially. Consumers are relying on credit cards because they cannot afford not to (revolvers). US Consumer Debt Delinquency Hits Highest in Almost Five Years - https://www.bloomberg.com/news/articles/2025-02-13/us-consumer-debt-delinquency-hits-highest-in-almost-five-years https://www.bloomberg.com/news/articles/2025-02-13/us-consum... | https://archive.today/ivRqd https://archive.today/ivRqd - February 13, 2025 Record Share of Americans Pay Only Minimum on Credit Card Bills - https://news.bloomberglaw.com/banking-law/record-share-of-americans-pay-only-minimum-on-credit-card-bills https://news.bloomberglaw.com/banking-law/record-share-of-am... - Jan. 22, 2025 Philadelphia Fed: Card Balances and Delinquencies Continue Upward Trajectory; Mortgage Originations Stagnate - https://www.philadelphiafed.org/surveys-and-data/2024-q3-large-bank https://www.philadelphiafed.org/surveys-and-data/2024-q3-lar... - January 22, 2025 St Louis Fed FRED: Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks (CCLACBW027SBOG) - https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG (credit card balances total ~$1T outstanding as of this comment)
- tobinfekkes 2y agoObligatory: https://m.youtube.com/watch?v=R3ZJKN_5M44 https://m.youtube.com/watch?v=R3ZJKN_5M44
- 486sx33 2y agoLet’s just say you’re a wealthy consumer with a million dollars in the bank. You’d still buy things with a credit card, why? 1. Purchase protection (insurance) 2. Chargeback protection 3. Rewards either points or “cash back” 4. Merchants hardly ever give cash discounts anymore, credit card fees are baked into the price of everything so you’re going to pay for the advantages above and receive nothing in return, plus have the burden and liability of carrying cash. Merchant side. 1. CC fees are high so we add 3.5% to the retail price of everything. Someone pays cash? Good, a small bonus. 2. Merchants are being charged the same for “debit” cards which allow electronic payments from bank accounts, coming with the same chargeback risks and fees as a CC. So what the heck assume the worst for every transaction. How to fix this. Does it need fixing? If the gov is going to push everything to electronic payments, you might as well get the rewards. The trap, if you’re not paying off your balance every month, the rewards are nothing and the interest rate is crippling.
- lxgr 2y ago> 1. Purchase protection (insurance) 2. Chargeback protection These are available on debit cards as well. (Both by law, i.e. Regulation E, and both Visa and Mastercard requiring issuers to provide zero liability policies to consumers.) > 3. Rewards either points or “cash back” Which consumers more than pay for themselves – all consumers, including those paying cash.
- ryandrake 2y ago> These are available on debit cards as well. The UX for chargeback protection is not quite the same, though. Say someone commits fraud and charges $1000 to my credit card. All that happens is 1. Some time later, I see the charge on my list of other charges, and 2. My bill is $1000 higher this month, which I dispute. Some time later, the CC company confirms it's fraud and the $1000 (and the interest) disappears from my bill. Say someone commits fraud and charges $1000 to my debit card attached to my checking account. Between the time the fraud happens and the time the bank confirms its fraud (or otherwise restores the funds per their fraud-reporting policy), my bank account balance is now $1000 lower. Maybe some checks start bouncing. Maybe I needed that $1000 for an upcoming purchase, and it's not available for a short period of time. Yes, the numbers will all eventually be correct, but it's mayhem in the mean time.
- hx8 2y agoI wonder if there is a market for secured credit cards with low interest. Maybe backed by a HELOC or stock portfolio. By lowering the default risk significantly lenders should be able to offer loan values closer to car loan numbers than loan shark numbers. I think people with enough assets to secure such a card might be those less likely to carry a balance, but maybe a lower interest rate would entice them.
- lxgr 2y agoSome brokerages offer debit cards that let you spend excess margin at very (compared to credit cards, at least) rates.
- gruez 2y ago>I wonder if there is a market for secured credit cards with low interest. Maybe backed by a HELOC or stock portfolio. What's the difference between that and transferring your credit card balance to your HELOC? You don't pay any interest on credit cards within the grace period on your bill, so this only adds marginal convenience
- scarface_74 2y agoAnd now you just turned unsecured debt into secured debt. In some states, your home is isolated from bankruptcy and other civil torts. But not against debt that you secured by it.
- vonneumannstan 2y agoWhats the value to the consumer who already doesn't carry balances? Higher Limits?
- deleted 2y ago[deleted]
- jjav 2y ago> I wonder if there is a market for secured credit cards with low interest. Maybe backed by a HELOC or stock portfolio. I would think the overlap between people who need to carry a balance on their credit card and those who have a HELOC (own a property with significant equity) or have a non-trivial stock portfolio, is rather small.
- crazygringo 2y agoThis article is actually really interesting and has non-obvious findings. The tl;dr is that it's not mostly due to defaults or for rewards programs. But rather due to very high operating expenses (4-5% of dollar balances!) driven by marketing. And also because the lending banks can't diversify. The risk of default is essentially magnified because you can't do anything if the economy turns bad and everybody starts defaulting together at the same time.
- ternaryoperator 2y agoThat's an excellent summary--clearer, in fact, than the summary at the end of the article itself.
- andrewmcwatters 2y agoIf you remove credit scores, which are a scam, then credit cards aren’t meaningful products outside of a payment method for low-income users. Debit cards have the same liability protections, and there are debit cards with cash back as well.
- gruez 2y agoWhich debit cards give anywhere near as much cash back as credit cards?
- evilsaloon 2y agoThe PayPal debit card lets you choose a 5% cash back category every month. Gas, restaurants, and a few other I don't remember. It's a much better deal than most of the credit cards I carry.
- scarface_74 2y ago5% cash back is less than 3% On cards that give you points if you travel a lot and transfer to partners. It’s definitely less than 4x points back I get on groceries and dining on my Amex Gold.
- andrewmcwatters 2y agoAnd the reason is because American Express simply charges more interchange than others... so, you're just spending more in a roundabout way.
- scarface_74 2y agoI have never known a vendor that charges more based on credit card types. The reason that companies are willing to pay higher credit card exchanges for Amex is because Amex users on average are bigger spenders. But even Chase Visa cards that transfer to Hyatt hotels and you can get 3x back for groceries (by paying with grocery store app so it counts as “online groceries) you’ll get more than 5% cash back. Then there is the whole r/awardtravel hacks of getting cheaper flights by transferring points to partner airlines like booking Delta domestic flights via AirFrance.
- deleted 2y ago[deleted]
- AngryData 2y agoBecause credit cards are a scammy middleman that has dug their nails deep into the political and financial worlds that lets them bully merchants into using them while pretending to be a benefit to consumers. In reality they just drive the price up for everyone, and then push a few percentage of the markup they pocketed onto consumers to appear useful. Consumers lose in paying higher prices, merchants lose by money being siphoned away to a 3rd party.
- toomuchtodo 2y agoThis is slowly changing, but will take time as merchants switch to accepting instant payments ("pay by bank"). My understanding from the merchants my org interfaces with is they are surcharging credit cards to drive spend to cheaper rails (when available). The big pay-by-bank projects launching right now - https://www.americanbanker.com/payments/list/visa-mastercard-dwolla-and-walmart-launch-pay-by-bank-projects https://www.americanbanker.com/payments/list/visa-mastercard... - October 25, 2024 Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://www.bloomberg.com/news/articles/2024-09-19/walmart-plans-instant-bank-payments-cutting-out-card-networks https://www.bloomberg.com/news/articles/2024-09-19/walmart-p... - September 19, 2024 FedNow Is Live - https://news.ycombinator.com/item?id=36801491 https://news.ycombinator.com/item?id=36801491 - July 2023 (if ACI, FiServ, or Jack Henry processes your payments today, you can accept instant payments without much more effort, inquire with them if interested)
- lxgr 2y agoCredit (and debit!) cards solve the trust problem of online shopping and as such are vital to competition: I know I can get my money back if I don't receive good or services anywhere; if that weren't the case, I'd probably only shop at a very small number of highly trusted merchants. Credit cards, in the US implementation where the issuer collects ~2% from the merchant and pays their cardholder a kickback from that, are both a cost to cash payers and very inefficient in general, but that's not the only way of doing things. The EU capped interchange fees at 0.3%/0.2%, for example, and purchase protection is still available just like before.
- benterix 2y ago
- Perenti 2y agoGreed. Capitalism. Mostly because people keep agreeing to pay a premium for the convenience of spending before the money comes in.
- methou 2y agoI feels weird that US businesses and affiliates usually don't welcome debit cards as much,