Luxury car purchases: More than $10 million in credit cards, car insurance and credit card products added in the first quarter of 2018
Luxury cars and luxury personal care products have more than doubled in sales and the cost of credit cards have soared as consumers have turned to new ways to buy and use credit cards.
The total value of credit card purchases jumped more than $8 million, from $1.5 billion in the year-ago quarter to $3.6 billion in 2018.
Larger companies like Ford Motor Co. and GM have also seen larger growth.
Ford reported an additional $5.2 billion in credit card spending in the quarter, while GM reported $3 billion in total credit card activity in the same period.
In total, the average purchase cost per credit card rose 4.4 percent, according to the latest data from Experian.
Credit card sales are up more than 4 percent, driven by more consumers and an increase in spending on credit cards with higher interest rates, such as auto loans.
Ford said its credit card volume jumped by more than 5 million to more than 17 million accounts in the third quarter.
Ford shares rose about 1.2 percent in premarket trading Thursday.
GM, which is seeing the most growth in credit car sales, reported an increase of about 2 million accounts for the third straight quarter.
It said the increase was driven by higher spending on auto loan debt.
Consumers are also looking for ways to reduce the amount of interest they pay on their credit cards or use their own funds to pay off the debt.
Some people have started using prepaid debit cards to reduce their monthly credit card bill, said Joe Kline, GM vice president of credit business.
Kline said customers are taking advantage of the new way to use their credit and savings accounts by opening new accounts with a prepaid debit card.
The prepaid debit industry is booming, fueled in part by a wave of new card issuers who offer new card types to cover high-cost credit cards such as car loans, home loans and credit cards for home improvement projects.
Some cards, including the Chase Sapphire Preferred, are more convenient than others.
Keline said that as consumers are increasingly paying with a debit card, some have been opting to use the prepaid card to save for future purchases.
A few of the cards, such the Chase Freedom Unlimited, are now being used more than ever by some consumers, Kline added.
“The Chase Freedom, Chase Freedom Plus, and Chase Sapphire Reserve are getting more and more popular with consumers,” Kline told analysts.
The increase in the number of credit and prepaid cards available has helped to spur a rise in interest rates on consumer credit cards as consumers take advantage of those higher interest costs.
For instance, Chase Sapphire’s average interest rate is 5.85 percent on a $100 balance, compared with 5.06 percent for the Chase Premier Rewards.
A recent report by Bankrate.com estimated the average interest on credit card accounts is now higher than ever, up to 4.25 percent on average, up from 3.88 percent last year.
For credit cards that earn interest, the increase in interest payments can be a big boost to the balance.
“Consumers who are using a prepaid card have much less risk of defaulting on their cards because they are getting free cashback and other benefits,” said Karen F. Tishman, a credit card analyst with Morningstar.
“In fact, many consumers are already saving more for the next year by signing up for credit cards on their own rather than with a credit union or a bank.”
The average interest cost for the average prepaid card is up to about 3.3 percent, which includes fees.
A prepaid card with a minimum balance of $5,000 and an annual fee of $500 can carry an interest rate of 2.7 percent.
The average annual fee on a typical $10,000 prepaid card will range from about $1 to about $2.5 per year, according the American Bankers Association.
For some consumers and companies, the interest on a prepaid credit card is often a better option because of lower monthly payments, fewer annual fees and other features, according a report from Wells Fargo Securities.
The report, “The Latest in Credit Card Trends,” predicts the average annual fees for the credit card will be between $0 and $5 per cardholder.
That compares with an average annual charge of about $10.10 for a traditional credit card and about $11.50 for a prepaid.
Some card issuees, like American Express Co., have raised their fees recently, and Wells Fargo has announced it is looking to cut its fees.
American Express’ rates are rising because the company is increasing the number and frequency of its debit card purchases.
Wells Fargo’s fees have been rising as the company tries to keep pace with surging consumer spending.
In the third-quarter, the company reported an 8 percent increase in annual fee revenue, compared to the same quarter last year, and a 4 percent increase on average fees