Credit Card Debt: Why Banks Charge You So Much in Interest
If you’ve ever opened your credit card statement and gasped at the 25–30% APR, you’re not alone. Millions of Americans wonder why credit card rates are so much higher than mortgages, car loans, or even personal loans. After all, how can a dinner or a vacation carry more interest than a $300,000 house?
The answer lies in risk, bankruptcy, and the nature of unsecured debt.
Why Credit Card Rates Are Higher Than Other Loans
When you finance a house or a car, the loan is secured by collateral. That means if you stop paying, the bank can repossess the car, and the lender can foreclose on the home.
But with credit cards, things are different. If you swipe for a $200 dinner, a $1,000 TV, or even a $5,000 vacation, there’s nothing the bank can take back if you default. That makes credit cards unsecured debt — and lenders charge higher interest to protect themselves against losses.
The Bankruptcy Factor
Another big reason is bankruptcy risk. Some people who have credit cards run up big bills and then file for bankruptcy. When that happens, credit card companies usually don’t get much or anything back.
To offset these losses, issuers spread the cost across all customers in the form of higher APRs. In short, responsible users end up paying for the defaults of others.
Why Rates Are Even Higher Today
Credit card rates aren’t just high — they’ve been climbing. According to the Federal Reserve, average APRs have recently topped 21% nationwide, with many consumers facing rates closer to 25–30%.
Two reasons explain this trend:
- Inflation and rising interest rates: When the Fed raises rates, credit card APRs go up automatically.
- Rising delinquencies – Banks raise rates to cover the risk of more people missing payments.
The result? In today’s world of finance, credit cards are one of the most expensive ways to borrow money.
What If Interest Rates Were Capped at 10%?
Politicians, including Bernie Sanders and even Donald Trump at times, have suggested capping credit card interest rates at 10%. At first glance, that sounds like a win for consumers drowning in debt.
But in reality, it would change the credit card game completely. Lenders wouldn’t be willing to take the same chances they are now. Credit cards would no longer be available to everyone; only people with almost perfect credit would be able to get them.
Here’s what you might see under a 10% cap:
- Stricter credit checks – Only top-tier borrowers would qualify.
- Liens on homes or assets – Lenders could tie cards to property as security.
- Fewer rewards programs – Companies couldn’t afford cash back or travel perks.
So while a cap sounds consumer-friendly, it would likely shut millions of everyday people out of access to credit.
The Double-Edged Sword of Credit Cards
High interest rates make credit cards dangerous for people who carry balances. A $2,000 balance at 25% APR can grow into $2,500+ in just a year if only minimum payments are made. That’s why many experts call credit card debt a “financial quicksand.”
But here’s the twist: if you pay in full every month, interest rates don’t matter. In fact, you can turn cards into a secret weapon — using them for rewards, fraud protection, and credit building.
The Takeaway
Credit card interest rates are high because the debt is unsecured and risky for lenders. Bankruptcy losses and missed payments make rates climb even higher.
Calls for a 10% cap might sound good on paper, but in practice, they would reshape the credit card industry into an elite-only system, stripping away rewards and accessibility.
The bottom line? Credit cards aren’t inherently bad — but carrying a balance is. Treat them as a tool, not a crutch, and you’ll never feel the sting of 30% APR.
