Credit card APRs (Annual Percentage Rates) reaching around 25% is primarily a result of the Federal Reserve’s interest rate policies, economic conditions, and credit risk factors that influence lenders’ decisions. The APR on credit cards is often tied to the prime rate, which itself is influenced by the federal funds rate set by the Federal Reserve. When the Fed raises its benchmark interest rate, the prime rate typically rises, causing credit card issuers to increase APRs on variable-rate cards to maintain their profit margins and cover increased borrowing costs[1].
Since early 2022, the Federal Reserve embarked on a series of rate hikes to combat inflation, raising the federal funds rate multiple times. These hikes pushed the prime rate higher, which in turn caused credit card APRs to climb steadily. By 2025, the average credit card APR had risen significantly, with many cards reaching or exceeding 25% APR. This increase reflects the higher cost of borrowing for banks and the increased risk they perceive in lending to consumers during uncertain economic times[2].
Although the Fed began cutting rates in late 2024 and continued to reduce rates in 2025, these cuts have not immediately translated into lower credit card APRs for many consumers. Credit card issuers often delay passing on rate cuts to existing cardholders or may only reduce rates on new offers initially. Additionally, credit card APRs include a risk premium based on the borrower’s creditworthiness, so if a consumer’s credit score drops or if they have a history of late payments, their APR may remain high or even increase despite Fed rate cuts[1][3].
The 25% APR level also reflects the inherent risk credit card companies take on. Credit cards are unsecured loans, meaning there is no collateral backing the debt. To compensate for the risk of default, issuers charge higher interest rates compared to secured loans like mortgages or auto loans. When economic conditions are volatile or inflation is high, lenders become more cautious and increase rates to protect themselves from potential losses[1].
In summary, credit card APRs hitting 25% is the result of a combination of factors: the Federal Reserve’s rate hikes to control inflation, the prime rate’s influence on variable APRs, the risk profile of credit card lending, and the lag in passing on rate cuts to consumers. Even as the Fed reduces rates, it may take time for credit card APRs to decrease significantly, especially for consumers with less-than-perfect credit or those who have missed payments[1][2][3].