I have a bunch of money on credit cards, and I’m a little bit nervous about the prospect of rising interest rates.
I expect my household income to rise fairly dramatically in about 2-3 years though, and by then I SHOULD be able to put a bigger dent in my balances than I am currently.
Currently my rates range between 8.9% and 13.5%.
State and federal usury laws aside, what are the sane outside bounds I can expect for “market rates” on credit cards to remain within during the next five years?
What is the lowest I would expect?
What is the highest I would expect ?
I believe that interest rates on credit cards are based upon the laws state upon which the card was issued. It’s probably safe to assume that South Dakato is fairly friendly to the credit card suppliers. Its always better to assume that it will maxout within the next two to five years. Unless of course anyone out there has a crystal ball . . .
Credit card interest rates are only controlled by the laws in the state from which they are issued. South Dakota has no usury limit, so there is no legal limit to how high the interest rates may go.
An article with some information on the changes to law that helped credit card companies proliferate
I’ve got cards with rates ranging from 3.99 to a touch under 24% (I don’t use that one, but having the credit line available and showing a couple years’ on-time behavior adds a couple points on the FICO score.)
Generally, the rate for people with decent credit is going to be some fixed number of points over the prime rate, and typically in the 10-15% area.
I (who live in New York) once got an “offer” for a card with a rate of 29.5% :eek:
And an annual fee! :eek: :eek:
I had a few good laughs before I tossed it.
Zev Steinhardt
Well,
Did some extra research. Assuming the relationship to the prime rate actually stays fixed, and that is assumption I am dubious about, there are some data points to be found.
The Fed has some historical primes here:
http://research.stlouisfed.org/fred2/data/PRIME.txt
My cards probably average 6 points over the prime.
I took all their 1947+ prime rates and threw them in excel. I came up with some statistics:
The Average is 10.17
The Median is 9
The High is 21.5
The Low is 1.75
So, barring guesses on my part that markets will do any given thing in the future, I can imagine that:
My average rate won’t go lower than 8.75 and won’t go higher than 27.5.
But if I exclude the inflationary heck we had from 1978 to 1982 or so, it won’t go much higher than 19%.
Then again, I suspect that prime rate locks make sense in a narrow range of prime rates, but if they moved to another territory you’d see different numbers added to the prime.
After all, I would imagine prime plus 6 sounds like a lot better return on investment when prime is 6 than it does when prime is 20. Then again, I may fail to understand how bankers view this stuff.