It has rarely been cheaper to borrow money in the U.S. Interest rates are at historic lows on pretty much every kind of loan. Or are they? According to a new report, credit card rates are starting to creep back up again.
Credit card rates rising
The new report from the credit card comparison site, CardHub.com, suggests that, not only are rates rising on pretty much every kind of credit card, but lenders are extending credit to more risky borrowers than in recent history. That is helping to drive up the rates.
Record low rates
Credit card rate increases are bucking the trend for most every other loan type. For instance, according to HSH Associates, the rate on a 30-year mortgage is down to 3.76 percent. And Bankrate.com says that, as of June, the average interest on a 4-year car loan was a historic low of 4.32 percent.
Secured credit cards
It is the riskier borrowers — those with low credit scores and poor credit history — who are having to pay the largest rate increases. Secured or pre-paid credit cards, which are often used by those who have suffered a bankruptcy and are trying to rebuild credit, now come with an average 19 percent interest rate. That is up from the 17.7 percent average recorded at the end of the first quarter, 2012.
Student credit cards
The average interest on student credit cards at the end of the March, 2012, was 15.8 percent. As of June 30, that average had risen to 16.3 percent.
Consumer credit cards
Consumers with excellent credit ratings saw the least rate hike. June’s quarterly average of 13 percent was flat line from March’s report. However, that is up slightly from the 12.7 percent average at the end of the second quarter, 2011.
Reasons for increases
Banks say that the reason for the increase lies in the fact that credit cards are still riskier than most other types of loans. If a borrower defaults on a car loan, the vehicle can be repossessed. But most credit cards are unsecured, leaving lenders no recourse should a borrower file for bankruptcy.
Additionally, some analysts believe that the creeping increase in credit card costs are a result of banks trying to pass the burden of increased regulation onto consumers.
To make matters worse for the consumer, the Wall Street Journal reported on Monday that some retailers are lobbying for the the right to charge consumers a fee for using their credit cards.
Minimizing the sting
To fight the trend, experts suggest that consumers use a variety of payment methods. By using cash for most purchases and by never charging more than can be paid off at the end of the month, consumers will minimize the sting.