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Financial crisis and zero interest credit cards
December 2, 2008 |
The market seems to be playing the roller-coaster ride lately. Whether it is the stock market, or the inflationary trends, it’s once again the customers who are at the receiving end. It all began with the mortgage crisis and now it is the credit card crunch. The initial years of flooding credit card offers and high credit limits are being drastically curtailed to fit into the already beleaguered financial mess. The roll back is hitting hard on creditworthy customers. To a great extent, the banks themselves are responsible for the present state of affairs as most of these credit cards are issued by the same banks. Driven by the zeal of market capture they resorted to the best credit card deals including credit card 0 APR and other credit cards with rewards. This resulted in non creditworthy customers signing in for zero interest credit cards and other credit card offers.
Most of the financial experts blame the aggressive policy pursued by the credit card companies to expand their consumer base as the major reason for this scenario. The zero interest credit cards and other low interest credit cards were actually designed to tap into the consumer base. But in this effort, one thing was forgotten - checking the creditworthiness of the customers. The result was expected. Default payments on zero interest credit cards began happening with most of the firms finding themselves in deep financial trouble.
The situation was so grave that many of the smaller players were forced to wind up their operations. Even the economic giants were not spared. The lenders were forced to write off an estimated $21 billion due to bad credit card loans during the first half of 2008. Currently, the estimates suggest that the total losses amount to almost 5.5 percent bad credit card debt and this figure could surpass above the 7.9 percent mark. Lenders are left with no other choice but fall back upon consumers who are witnessing lower credit limits and even pulling off their credit lines.
The credit card with rewards programs has become stingier. The less creditworthy customers are being subjected to stiffer lending rules the market is also witnessing a pull back on the no interest credit card offers. The credit card profit margins have shrunk like never before because the lenders’ own costs remain elevated or to say the least unchanged and the investors keep defaulting on the credit card bonds.
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