Credit card interest rates often surprise people with how steep they are compared to other types of loans. These are the key factors:

  • Unsecured debt: Credit cards don’t require collateral, meaning banks take on more risk if you don’t pay. Higher interest helps cover that risk.
  • Revolving credit: Unlike a fixed loan, you can borrow, repay, and borrow again. The flexibility comes at a cost.
  • High default rates: A significant number of people miss payments or default on credit card debt, so issuers raise rates to offset those losses.
  • Operational costs: Processing millions of small transactions, fraud protection, and rewards programs are expensive to maintain.
  • Profit driver: Credit cards generate significant profits for banks; thus, interest rates are set to maximize revenue.

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