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Interest rates jump following Capital One APR hikes

Summary

Interest rates on new credit card offers offers jumped this week, after Capital One increased rates on seven of its cards.

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Interest rates on new credit card offers offers jumped this week, after Capital One increased rates on seven of its cards.

CreditCards.com’s Weekly Rate Report
Avg. APRLast week 6 months ago
National average14.34%14.14%14.50%
Low interest11.99%11.99%12.24%
Cash back12.49%12.31%12.53%
Balance transfer12.81%12.68%12.77%
Business12.85%12.85%13.06%
Airline14.37%14.14%14.43%
Reward14.38%14.31%14.44%
Student14.49%14.05%14.10%
Instant approval15.99%15.99%18.41%
Bad credit21.04%20.64%20.84%
Methodology: The national average credit card APR is comprised of about 100 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.)
Source: CreditCards.com
Updated: 9-29-2010

The national average annual percentage rate (APR) on new credit card offers climbed to 14.34 percent, according to the CreditCards.com Weekly Credit Card Rate Report, lifted by Capital One‘s rate hikes. Those gains marked the first time in six weeks that rates have increased.

Cap One hiked APRs on a variety of cards, including the Classic Platinum Card for Young Adults; the No Hassle Cash Reward cards for average, good and excellent credit; the Venture One Rewards card; the Venture Rewards card and the Standard Platinum card. Although Cap One didn’t provide comment, the bank has previously said it adjusts rates based on the “competitive landscape” and the overall market for cards.

The bank might also be raising APRs to guard against losses. According to the latest data from Moody’s Investors Service, U.S. credit card charge-offs — or the amount of unpaid debt that banks gave up on collecting, compared to total outstanding principal balances — rose to 10.03 percent in August. Still, Moody’s says that despite the latest rise, the charge-off rate on a three-month rolling average basis is now below 10 percent for the first time since May 2009.

That’s partially due to banks’ less-generous lending. “The relative improvement in card charge-offs is due to credit tightening, including lower credit limits and stricter underwriting standards,” Moody’s analyst Jeffrey Hibbs said in a company press release. “Charge-offs are expected to decline even further given the improvement in delinquency rates, which are often a harbinger of the future charge-off rate trend,” Hibbs added. In other words, as cardholders increasingly repay their debts on time, banks can worry less about having to write-off big losses.

Although those tighter lending standards may be good for banks’ profits, they can be tough on consumers’ wallets. 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 $6,416 to pay off the debt. That’s $182 more than would have been required on Jan. 1, 2010, when the national average APR was 12.97 percent. (Calculator: How long will it take to pay off your credit card balance?)

Amid the combination of bank charge-offs and consumer distaste for debt, credit card balances have been falling. The most recent consumer credit report from the Federal Reserve showed that credit card balances plunged by more than $4 billion in July, for a record 23rd straight monthly drop.

Nevertheless, cardholders may not have put away their plastic for good. Despite the recession’s devastating impact on the economy, some experts believe consumer spending will begin to recover. “While the near-term outlook has softened a bit, I expect growth in the national economy to be around 3 to 3.5 percent over the next two years, with stronger business spending on equipment and software, moderate growth of consumer spending, and gradual improvement in household balance sheets,” Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a speech on Wednesday.

See related: Consumer credit card debt shrinks again in July, Calculator: How long will it take to pay off your credit card balance?Credit card rates: interactive graphic on APR changes

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Credit Card Rate Report Updated: August 14th, 2019
Business
15.55%
Airline
17.50%
Cash Back
17.63%
Reward
17.50%
Student
17.69%

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