[HN Gopher] Why Are Credit Card Rates So High?
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Why Are Credit Card Rates So High?
Author : Vox_Leone
Score : 29 points
Date : 2025-04-01 22:26 UTC (33 minutes ago)
(HTM) web link (libertystreeteconomics.newyorkfed.org)
(TXT) w3m dump (libertystreeteconomics.newyorkfed.org)
| matt3210 wrote:
| If 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 wrote:
| > 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 wrote:
| There will be another sale. Probably pretty soon.
| rlpb wrote:
| So 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 wrote:
| There 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 wrote:
| Fraud 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 wrote:
| In Europe they have debit card with the same level of fraud
| protection - and without credit.
| 20after4 wrote:
| That 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.
| jncfhnb wrote:
| Life hack: don't need things you can't afford
| okayishdefaults wrote:
| I've always wanted to be able to afford.
| zdw wrote:
| Works great with healthcare?
| scarface_74 wrote:
| Yes, people should just stop being poor...
| banqjls wrote:
| I 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 wrote:
| Credit cards are just a mechanism for micro loans.
|
| Loans and debt do not exist just because some people lack
| discipline.
| tmoertel wrote:
| Or 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.
| SL61 wrote:
| I'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 wrote:
| I have operated under this models 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 wrote:
| It's also a popular investment strategy to draw the credit (
| potentially from multiple credit cards) and invest it.
| kstrauser wrote:
| Popular among whom?!
| BenjiWiebe wrote:
| IMO, 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.
| nostrademons wrote:
| They'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.
| golergka wrote:
| Looking 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 wrote:
| Because 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-medi...
|
| https://www.stlouisfed.org/on-the-economy/2024/may/which-us-...
| surajrmal wrote:
| Many folks carry zero credit month to month and still use a
| credit card. You're giving away free money by not using it.
| Enginerrrd wrote:
| Because credit cards offer better protections from fraud making
| the consumer not liable. Debit transactions don't have that and
| they are also linked straight to your account so theres also
| additional risk where if someone steals the money using your
| debit information it's just gone.
| 486sx33 wrote:
| Exactly.
| tossandthrow wrote:
| In Europe they offer the same amount of protection.
| thfuran wrote:
| It offers more protections for the purchaser than a debit card
| with no direct additional cost as long as the bill is paid in
| full. They also often provide additional incentives like some
| percentage cash back.
| 486sx33 wrote:
| And 30 days no payment no interest.
| goodoldneon wrote:
| Because I get rewards when I use it. I always pay at the end of
| the month so I never pay interest
| jwiz wrote:
| Credit cards have better consumer protection than debit cards.
|
| You are on the hook for like $50 max of fraudulent credit card,
| and like $500 of fraudulent debit. If you don't catch debit in
| time, you might be liable for all of it.
| skadamou wrote:
| If you are able to pay off your credit card balance each month,
| you can earn rewards points on every purchase which is money
| back in your pocket. Even if it seems like a tiny amount, in
| the long run, you are leaving money on the table using a debit
| card as opposed to a credit card for most of your purchases.
|
| The big caveat being you MUST pay the balance off each month to
| avoid paying interest otherwise you are losing money by using a
| credit card.
| forestgreen76 wrote:
| Because it builds credit, and most credit cards these days have
| points/cash back programs, the caveat being you have to be very
| diligent about budgeting and ensure you pay the balance off in
| full every month.
|
| The problem is, most people don't do that.
| ponector wrote:
| US has both: insane credit card rates and bonus rewards (miles,
| cashback, etc).
|
| In EU rewards are shit, and the only reason to keep credit card
| is to be able to rent a car during summer vacation.
| tobinfekkes wrote:
| Obligatory: https://m.youtube.com/watch?v=R3ZJKN_5M44
| 486sx33 wrote:
| Let'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 wrote:
| > 1. Purchase protection (insurance) 2. Chargeback protection
|
| These are available on debit cards as well. (Not by law, but
| both Visa and Mastercard require issuers to provide zero
| liability policies to consumers.)
|
| > 3. Rewards either points or "cash back"
|
| Which consumers more than pay for themselves.
| hx8 wrote:
| I 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.
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(page generated 2025-04-01 23:00 UTC)