By AnnaMaria Andriotis
Last Update: 12:01 AM ET Jul 11, 2012
Borrowers continue to pay record low interest rates, with one major exception: credit cards.
Rates on student credit cards hit 16.3% on average during the second quarter of 2012, up from 15.8% during the previous quarter and 15.9% a year ago, according to new data from CardHub.com, a credit-card comparison website.
Banks have been raising rates on credit-card users of all stripes over the past year, but consumers with no credit histories or poor credit scores saw the biggest increases. Rates on secured cards, which require borrowers to pay a security deposit in order to get a line of credit, now average about 19%, up from 17.7% in the first quarter.
Rates for consumers with excellent credit scores averaged almost 13% during the second quarter. That was unchanged from the first quarter, but up from 12.7% a year prior. Merchants, meanwhile, are pushing for the right to charge customers extra for credit-card purchases, The Wall Street Journal reported Monday.
Financial advisers say consumers should rely on a mix of payment methods in light of rising credit-card costs. They suggest shoppers pay mostly with cash and limit credit-card use to purchases that can be paid off in full each month.
These higher credit-card rates come as rates on other types of loans are at historic lows. For example, rates on 30-year mortgages average 3.76%, according to HSH Associates, a mortgage-data firm. Rates on many car loans also remain in low single-digit territory.
The reason for the discrepancy, said Keith Leggett, vice president and senior economist at the American Bankers Association, is that credit cards still present more risk than most other types of loans. Most credit cards are unsecured, meaning lenders cant reclaim an asset if borrowers stop paying their bills. In contrast, banks take back homes and cars when those loans arent paid.
In addition, banks have been offering more credit cards to riskier borrowers since last year, which has led to an increase in the average credit-card rate.
Another contributor: incentives. Credit-card issuers have been expanding their 0% interest-rate offers on purchases and balance transfers, and to make money theyre raising the rates theyre charging after the promotional periods end, said Odysseas Papadimitriou, chief executive at CardHub.om.
The average length of 0% introductory offers on balance transfers and purchases lasted about 10 months during the second quarter, up from seven to eight months a year prior, according to CardHub.com.
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