Interest rates fall as issuers modify credit card offers
Interest rates on new credit card offers fell this week, according to the CreditCards.com Weekly Credit Card Rate Report, after issuers tweaked the rates on several card products.
|CreditCards.com's Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)|
The national average interest rate on new credit card offers declined to 14.42 percent, as banks continue to test card offers in a difficult lending environment that has issuers caught between tougher regulations and a slowly recovering economy. The latest card changes included adjusted annual percentage rates (APRs) on cards from Chase and PartnersFirst.
Chase said its latest changes -- reducing the lower end of the Slate card's APR range and increasing the Priority Club Rewards Visa card's rate -- stem from a variety of factors but didn't elaborate on what those factors were. Many other banks, in discussing their recent rate moves, have pointed to economic challenges and the Credit CARD Act, which restricts rate increases on existing plastic but doesn't limit APRs for new offers.
The Golf Magazine Rewards Visa card, meanwhile, changed from a single rate to an APR range of three pricing levels, enabling issuer PartnersFirst to better price for risk. "We're reacting to competition -- primarily trying to get a lower rate out there for our higher credit quality customers," says Hal Erskine, chief executive of PartnersFirst. That APR range, of course, also enables the lender to charge higher rates to cardholders with lower credit scores.
These rate changes, combined with the removal of some discontinued cards from the database, pushed the national average lower. Based on CreditCards.com's interest rate data, a typical cardholder who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,427 to pay off the debt. That's down from last week, but it's still $235 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)
During recent months, that upward rate movement has largely been blamed on a combination of the CARD Act and the recession, which has kept banks cautious about lending too much money to consumers who may find it difficult to pay back.
But those weak economic conditions may be changing. Along with the latest decline in APRs, this week brought additional positive news regarding consumers. Government data shows March retail sales increased 1.6 percent, for the largest gain in four months and a signal that consumer confidence may be returning.
It's unclear whether consumers are spending more with plastic or cash or both. Regardless, Federal Reserve Chairman Ben Bernanke said he believes consumer spending -- which is closely tied to shoppers' confidence in their job security and the strength of the economy -- will continue to increase. "Going forward, consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows and some improvement in credit availability," the Fed chief testified Wednesday before Congress.
See related: Credit card reform arrives in the form of the Credit CARD Act, A guide to the Credit CARD Act of 2009, What's NOT covered by the credit card reform law, Issuer of 79.9% interest rate credit card defends its product, Calculator: How long will it take to pay off your credit card balance?
- Card applicants getting approved more often, NY Fed says – Credit card applicants met with success more often in the past year, New York Fed survey says, as applicants' credit improved ...
- NY Fed: Credit card delinquencies continue to rise – Federal Reserve Bank of New York's Household Debt and Credit report says more balances are in late-payment status, but overall delinquencies are moderate ...
- Fed: Card balances passed $1 trillion in September – Card balances crossed the $1 trillion mark in September, according to the Federal Reserve ...