“Why Credit Cards are So Expensive in Colombia: Exploring Interest Rates and Consumer Trends”

At least until the end of May, people who want to use their credit card must take into account that the maximum limit that banks can charge for interest is 45.41%the highest level of the century.

Why is credit so expensive? Colombia has had a period of 20 months since the Bank of the Republic began the upward cycle of monetary policy, in September 2021. That is, this is the time since the Issuer decided to raise interest rates so that in theory, consumption shrinks.

This is a position adopted in almost the entire world to face the excessive growth of the economy and the subsequent inflationary crisis.

Even with the highest interest rates in almost 30 years, Colombians continue to use credit cards and go to the quota that their banks approved for them. This is reflected in the report of the Financial Superintendency with cut to February which shows that in the country there are 15.8 million valid plastic cards, and even with the pressure of the cost of borrowing last year there was a growth of almost 60,000 new cards of credit.

“Although the cards grew in 12 months almost 1% seems little, but it shows that this service continues to be used regardless of the fact that for every $100 more than $40 goes to pay interest,” added Juliana Salamanca, an analyst at U. de Los Andes.

In fact, there is not only an increase in the number of cards, but even more importantly in the quota used by people, as well At the February cutoff, Colombians owe banks $39.1 billion which is equivalent to 20% more than in the same month last year.

Seen in another way, in February 2022 when the maximum rate for credit cards was 27.7%, people owed banks $32.5 billion for their plastics. And a year later, no matter what the rate exceeded 45% there was a greater demand for credit with its quotas.

Even the amounts that the banks are authorizing continue to advance, for the second month of last year credit cards had an unused quota of $69.9 trillion, and now in 2023 that number has risen to $74.4 trillion, an increase of 6 ,5%.

At the time, the Issuer’s manager, Leonardo Villar, said that for the first months of the year “There is a cooling in the demand for credit, but it has been especially in high-value portfolios and commercial lines”there then the high rates have served to pressure the demand.

But as seen in the GDP report “people continue to pay for non-essential goods, which led to the fact that the concerts are sought and in many cases financed”, referring to the fact that those who seek live shows remain in the use of credit cards for their tickets.

A different point in the balance is in the aincrease in the number of canceled cards, although it is not at a strong rate between February of last year and this month of 2023 there was an advance of 8.2% in the number of suspended plastics.