Why Are Credit Card Rates So High?

Itamar Drechsler (idrechsl@wharton.upenn.edu), Hyeyoon Jung, Weiyu Peng (weiyupen@wharton.upenn.edu), Dominik Supera (ds3791@columbia.edu) and Guanyu Zhou (guanyuz@wharton.upenn.edu)
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Itamar Drechsler: https://fnce.wharton.upenn.edu/profile/idrechsl/#research
Weiyu Peng: https://fnce.wharton.upenn.edu/profile/_whrtn144/
Guanyu Zhou: https://fnce.wharton.upenn.edu/profile/_whrtn147/

No 20250331, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Credit cards play a crucial role in U.S. consumer finance, with 74 percent of adults having at least one. They serve as the main method of payment for most individuals, accounting for 70 percent of retail spending. They are also the primary source of unsecured borrowing, with 60 percent of accounts carrying a balance from one month to the next. Surprisingly, credit card interest rates are very high, averaging 23 percent annually in 2023. Indeed, their rates are far higher than the rates on any other major type of loan or bond. Why are credit card rates so high? In our recent research paper, we address this question using granular account-level data on 330 million monthly credit card accounts.

Keywords: credit cards; banking; asset pricing (search for similar items in EconPapers)
JEL-codes: E02 G12 G21 G51 (search for similar items in EconPapers)
Date: 2025-03-31
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