Card Loan Interest Rates Exceed 14% for First Time in 9 Months

Average interest rates on card loans, often a go-to for quick cash, have climbed back above 14% for the first time since October of the previous year. This marks a significant shift, with the average rate reaching 14.15% by the end of July, up from 13.87% the month prior.

The rise in borrowing costs is largely attributed to the increasing expenses card companies face in securing funds. As financial institutions without deposit-taking capabilities, card companies rely heavily on issuing bonds like financial debentures to fund their operations. With market interest rates remaining high, these funding costs are directly passed on to consumers in the form of higher loan rates.

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There is ample room for interest rates to rise further due to additional rate hikes and risk management.

Interestingly, the trend in interest rates varies significantly across different credit score segments. While borrowers with the lowest credit scores (501-600) have seen their average rates drop by a substantial 2.01 percentage points to 13.85%, those with higher credit scores have experienced increases. Borrowers with scores above 900 saw the largest jump, with rates rising by 0.62 percentage points to 12.29%. This divergence suggests a strategic response by card companies, potentially influenced by financial authorities' push for increased lending to mid- and low-credit score individuals.

Despite the overall upward trend, the financial authorities' encouragement of mid-rate loans, which are excluded from household debt limits, may temper a sharp increase in the average card loan rate. However, card companies face a delicate balancing act between expanding lending and managing increasing risks, especially with rising delinquency rates across the financial sector and the possibility of further central bank rate hikes.

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We have actively participated in the government's request to expand mid-rate loans, and despite higher funding costs this year compared to last year, card loan interest rates have remained at similar levels to last year. Moving forward, whether we expand mid-rate loans for a high-volume, low-margin strategy or prioritize soundness and risk management will determine the movement of average interest rates.