Odd Lots This Is Why Credit Card Interest Rates Are So High
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Nov 28, 2025 
In this conversation with Itamar Drexler, a finance professor at the Wharton School, listeners dive into the surprising world of high credit card interest rates. Drexler explains how banks profit through swipe fees and marketing costs, revealing the stark differences between transactors and revolvers. He debunks the myth that default rates justify these high APRs and discusses the impact of rewards on consumer behavior. The discussion also touches upon the challenges faced by fintech and the implications of macroeconomic factors on credit card pricing.
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Majority Of Users Revolve
- Roughly 60% of card users revolve balances and pay interest, and average APR for revolvers is around 23%.
- That APR level is strikingly higher than most other forms of consumer and corporate credit.
Defaults Don't Fully Explain APRs
- Expected charge-offs explain only a portion of high APRs; average charge-off for revolvers is about 5.75% of balances.
- Defaults are meaningful but far below the level needed to justify ~23% APR alone.
Risk Premium Adds To Rates
- There is a separate risk premium for unexpected defaults, adding roughly another ~5% on average to APRs.
- That risk premium rises substantially for lower-FICO borrowers, reaching ~9% for FICO ~600.