We're offering these people a service they might not otherwise be able to get. Some of our customers who have a history with us have rates below 15 percent. The APR kicks up to 29.2 if you are late twice in six months. Considering that the average APR for someone with decent credit is between 13 and 16 percent, rates for blemished borrowers seem merciless. The subprime card industry is very high on the risk scale.
Risk is one reason subprime rates are so high.
The credit card business as a whole is a bigger gamble for financial institutions. Veribanc found that in 1998, the losses by U.S. banks for credit card debt were more than seven times higher than for other types of loans. When an issuer targets people with spotted credit, its risk increases. CompuCredit wrote off 5 percent of its card loans as uncollectible during the third quarter of the year, according to a company news release. The industry average is down to about 4 percent.