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Why are credit card interest rates so high?

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Kyle is confused. He has incurred a balance on his credit card on which he pays interest at an annual rate of about 18%. Then, he reads that the interest rate that the Federal Reserve charges to banks is currently 4.75%.

Which of the following factors best explains the difference between these two interest rates?
A. Taxability
B. Loan size
C. Risk of default
D. Maturity

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Solution Summary

This solution explains why credit card companies charge interest rates many times higher than the Federal Reserve does.

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