Economy

Why Banks Fear Interest Free Credit Cards

Did you know that interest-free credit cards are making banks uncomfortable? Read on to see why banks fear interest-free credit cards.

The following are reasons why banks fear interest-free credit cards.

No interest cards are a ticking time bomb

The deal isn’t as it appears on paper because banks still intend to recoup their money once the interest-free period is over. The banks assume that the customers will still have an outstanding balance to pay, for them to start charging high interests. It could be detrimental to the banks if customers decided to pay their debts in time. The banks could also end up facing litigation for overstated profits like Tesco did in 2014.

Customers could lose confidence in credit cards

Most customers could prefer the interest-free offers because they don’t want debts. With banks giving options like installment payments, a customer who doesn’t understand the jargon might find themselves paying hefty interests when the offers end. Anything could also happen during the period like loss of income. A customer that is unable to make monthly installments could end up with outstanding balances even if they intended to pay back within the interest-free period. For that reason, customers might avoid the cards. Word also travels fast, and it could be just a matter of times before customers avoid bank products in fears of facing the unknown in the future.

Interest-free credits cards are great for customers, but there are valid reasons why banks fear interest-free credit cards.