Problems in subprime market could affect credit card rates…
Recent turbulence in subprime lending market has had a ripple affect far beyond the mortgage business. Increased costs and stricter approval guidelines for every type of loan product, from home-equity to car loans, may also result in rising interest rates for credit cards. Even with speculation that the Federal Reserve may cut interest rates in September, consumers considered “high risk” are already seeing an impact. Although there’s been no noticeable change in interest rates for low-risk borrowers, higher risk individuals can expect to pay more now than in the past. Borrowers with damaged credit are being hit with rates as high as 33%– and people with borderline credit are seeing increases as well.
One prime example is the the Discover More Card, who’s APR has remained steady at 10.99% for good credit borrowers. But just recenlty, Discover raised it’s second-tier pricing (for riskier clients) from 17.99% to 18.99%. Other credit card issuers are sure to follow suit…
Another obvious impact has been a reduction of introductory deals. Many credit card companies have shortened their 0% intro periods from 12 to 6 months to offset a potential down turn in the credit markets. This means consumers will have less time to take advantage of paying zero interest before they see their credit card rates increased to the normal ongoing APR. In addition, credit card issuers that previously offered to transfer balances for free are now charging balance transfer fees of 3% or more.
“Issues in the subprime lending market are bound to affect the credit card industry,” says Jeremy Panizzoli, President and CEO of ASAP Credit Card.com. “The same issues which caused mortgage lenders to be wary, have caused credit card companies to become wary too. With rates starting to increase and introductory offerings being limited, it’s likely we’ll see more rate increases to follow with issuers tightening their approval guidelines– making it even harder to get approved for a credit card.”
While some offers have already seen increased rates, for the most part, credit card APR’s appear to be stable for now. Many issuers have reduced their 0% APR offerings, but there’s still a good selection of 12 month offers available. But if the so-called “credit-crunch” continues, easy credit might become a thing of the past. And finding a good 0% APR deal with a low rate might be next to impossible unless you have perfect credit.
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