What is the REAL cost to a CC company

zagfles

opinions4u wrote: »

No it isn't. Interest income is several times higher. Interest margin is several times higher than transactional income margin.

Of course, but there's far more transactional income, and it's less risky. People who pay in full are far less likely to default.

I guess it depends on the card, for instance I very much doubt Amex make more on interest than transactional income, whereas those cards who constantly try to get people to transfer balances probably make more on the interest.

Marginally below 50% for a mainstream card book.

61% according to UK cards association http://www.thisismoney.co.uk/money/cardsloans/article-2145584/Cashback-vs-rewards-Which-credit-card-really-pays-1-000-spending.html

nctmum

Just to add my twopenneth worth - to the original OP, base rate is not what many banks borrow money at - if you take a standalone issuer, they will need to borrow money from the money markets to lend to us, so it depends on what the funding cost is etc. Plus the costs etc that others have mentioned. I'm not saying they don't rake it in, in terms of £s, but % terms I think you'd be surprised how slim the margins are for cc companies funding 0% deals

chattychappy

GSD4ME wrote: »

The next question is "why doesn't the government limit any sort of lending to base rate + (say) 5%"?

Why should they?

dzug1

GSD4ME wrote: »

The next question is "why doesn't the government limit any sort of lending to base rate + (say) 5%"?

Many thanks

Because the government doesn't believe in regulation

Though you'd find that hard to believe sometimes.

opinions4u

zagfles wrote: »

61% according to UK cards association http://www.thisismoney.co.uk/money/cardsloans/article-2145584/Cashback-vs-rewards-Which-credit-card-really-pays-1-000-spending.html

Dear me I am out of touch these days!

Cheers for that.

debtinfo

You also have to take into account the fact that you need to persuade the lender to lend to you. For instance if the lender can put their money somewhere else and get a good rate of interest why should they lend to you unless you are going to give them a better return. Of course that is all averaged over all their customers rather than you in particular.

pqrdef

They should do something about the absurdly low minimum payments. For instance, they could require that repayments on new borrowing should be at a level that will clear the balance in 12 months. A year is long enough for "convenience" borrowing.

This would make credit cards look expensive. Which they are, but they disguise it by offering what are close to interest-only terms.

The card companies would have to reduce rates to maintain volume. But they'd have less bad debt, because fewer people would get in over their heads.

opinions4u

pqrdef wrote: »

They should do something about the absurdly low minimum payments. For instance, they could require that repayments on new borrowing should be at a level that will clear the balance in 12 months. A year is long enough for "convenience" borrowing.

This would make credit cards look expensive. Which they are, but they disguise it by offering what are close to interest-only terms.

The card companies would have to reduce rates to maintain volume. But they'd have less bad debt, because fewer people would get in over their heads.

I would certainly agree that the old 5% of balance minimum payment had a lot going for it.

Perhaps the default direct debit option should be 10% instead of all or minimum.

chattychappy

pqrdef wrote: »

They should do something about the absurdly low minimum payments. For instance, they could require that repayments on new borrowing should be at a level that will clear the balance in 12 months.

Disagree. It has been a great convenience to me over the years that minimums have been low - particularly on BT deals. The CCs were willing to lend and I was willing to borrow. I don't see why "we" should have been deprived of this because others can't manage their finances.