Do you consider yourself a highly-disciplined credit card(s) holder? Though credit card has been designed to ease the hassle of cash transactions, but how has it turn into a profit center for the issuers?
Some physchology effects must be at work here.
Does the bank knows something that the average consumers are not aware of?
Credit card loans have higher interest rates than most other consumer loan rates, due mainly to loan defaults, overhead, and the cost of financing the loans. Unlike most other consumer loans, credit card loans are not secured by assets that could be seized if the consumer defaulted. In addition a card holder is more inclined to use the full line of credit when his financial situation worsens – precisely the riskiest time for a creditor.
Credit card loans usually include other costly benefits such as frequent flier miles, purchase guarantees, and insurance. About 40 percent of credit card holders use them only as payment devices and pay off their short-term loans before the issuer charges interest. In spite of these expenses, credit cards are an important profit center for most issuers.
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