Despite central banks reducing base rates to an historic low, credit card interest rates are set to rise. A report by PriceWaterhouseCoopers claims that existing business lending models are not sustainable due to the level of bad debts, funding constraints and an extremely difficult economy. It is expected that interest rates will rise, credit card annual fees will become far more common and 0% balance transfer cards will become increasingly hard to find. Furthermore, it is anticipated that cards are likely to be transformed from tools of borrowing into just a method of payment.
Credit Card Interest Rates - Delinquency Rates, Not Central Bank Rates
The rate set by the Federal Reserve is not the main determinant of what credit card rate lenders will charge. The figures are normally determined by the level of unemployment and the increased probability of default. According to a July 2009 article in Reuters, charge card delinquency rates have soared to 6.6%. Given that the money spent on charge cards is unsecured and can be discharged by filing chapter 7 bankruptcy, lenders are trying to protect their balance sheets by charging their customers more.