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Why Credit Card Interest Rates Higher are Compared to those of other Loans?

 

Why Credit Card Interest Rates Higher are Compared to those of other Loans?

Why Are Credit Card Interest Rates Higher Than Other Loans? Many have repeatedly asked this same question. Currently, in Bangladesh, the interest rate on credit cards is 20%, whereas the maximum interest on other loans is 9%. Why this discrepancy? The difference in interest rates between credit cards and other loans is not unique to Bangladesh. In almost every country in the world, the interest rate on credit cards is higher compared to other loans.

Now, let's try to explain this:


1. Unsecured Loans: Loans are provided with some collateral/security. (Except for personal loans) With credit cards, there is no collateral required, only based on your income and some documents.

 

2. Defaulter Percentage: In the case of loans, if one cannot repay all the money, it can be recovered using the collateral. But with credit cards, this is not done except for secured cards.

 

3. Bank's Risk: The risk for the bank with loans is 0% because if one cannot repay, it can be recovered with the collateral. But with credit cards, there is a 100% risk.

 

4. Equity Fund: When a bank gives a loan, the money is given all at once, so it doesn't have much effect on the bank's fund. But for credit cards, the bank needs to keep funds available all the time because if you buy something from a merchant, the bank has to pay the merchant immediately. So, the bank needs to keep funds accordingly.

 

We have attempted to analyze based on the type of service of credit cards. Apart from the above reasons, there may be other reasons.