Credit Card Rates-Be a smart applicant and user
Credit is not for free! Card issuers stipulate interest or finance charges
for credit cards. Combined,
they are called APRs for credit cards. Credit cards provide
the comfort of buying without cash. The card issuers stipulate
a due date for repayment. Payments within the due date do not
attract any interest or charges. However, payments beyond due
dates do attract interest and other charges. Cumulatively these
rates and charges constitute APRs (Annual Percentage Rate) on
the card. APR is the most important factor you have to consider
before applying for a credit card.
These charges can either be variable or fixed rates:
1. Variable rate
Prime means the "best," and this rate is what banks charge their best commercial customers for loans. The prime rate changes often and is reported daily in The Wall Street Journal, and is used as a reference point for many businesses. The prime rate is used by some financial institutions to vary APR for credit cards. For example, a rate given as 9% plus the prime rate will be 16% when the prime rate is 7%. The APR quoted on a credit card covers not only the basic interest charged on the balance, but also incorporates the costs of the company administering the account. Unless that APR is fixed for a certain time period, the rate will be variable and will alter over time.
2. Fixed Rate
The banks generally stipulate a minimum and a maximum fixed rate to protect the consumer (or the banks) from wide fluctuations of the prime rate. These fixed rates can be less expensive since the banks are not affected by the fluctuation in the market. A fixed rate is the better choice for consumers with fixed incomes and for those with no control over their payment budgets.
APRs are fixed either based on past performance or
for introductory purposes.
1. Performance (or Risk Based) APR
A performance APR is similar to a variable APR, but it is based on your payment performance. There is a standard APR when you open the account, but that APR will increase if you are late making a payment. If the APR has gone up because of a late payment or late payments, it may go back to the standard APR if you are not late on your payments for a certain period (typically one year).
2. Introductory APR
Temporary low interest rate or 0% APR (expressed as a yearly rate) is offered by providers to "introduce" you to their services. It will usually go up after a certain amount of time. These rates often apply towards entire balances, new purchases, balance transfers (used to pay off other accounts) or for buying specific merchandise from specified stores. The card holder gets to pay lower interest or no interest. The payee gets more sales. The bank increases income by way of money lent out. At times even the store owners pay extra marketing transaction to the bank for increasing their sale. There are instances where the bank collects the entire interest from the payee instead of the card holder.
Many banks have a contractual default rate since the year 2000. This is typically higher than the APR. This rate takes effect automatically under the following conditions.
• One or two late payments.
• Amount remaining overdue beyond the due date.
• Returned payment.
• Any charges levied by which the credit limit is exceeded (some times
including the bankown fees).
• Any reduction in credit ratings or default with another lender. (The
bank uses its discretion to stipulate the interest rate.
• A single late payment or even a non-reconciled mistake on any account,
could result in huge hike in charges over the life of the loan.
Interest free grace period
Many banks charge no interest on the statement balance amount paid by due date. However for cash advances, interest is charged from the date of transaction.
In addition, charges may be made for:
• Balance transfers from another card
• Replacement of lost or damaged cards
If you decide to apply for a credit cards, be a smart consumer and shop around.
Look for a company that offers the following:
• Low interest rates or finance charges (combined, they are called APR)
• Low or no annual fees
• A grace period (time during which no payments are due) before finance charges are posted
• Other benefits including purchase warranties, free gas, airline miles, etc.
Tips to avoid incurring huge charges:
1. Scan the credit agreement fine print to check exactly what may be charged fo.
2. Interest free period: Make sure the card offers an interest-free period; otherwise interest is charged from the day of purchase.
3. Late payments: set up a Direct Debit for the payment. Of course, if your balance is zero, no interest will be charged.
4. Over Credit Limit: first of all, ensure that more than the minimum payment is made each month to prevent balance spiraling upwards. If more credit is required, simply ring up the credit card company and ask for it. Any payments over the minimum made will help in this request. Consider a balance transfer to a card with a low rate if balances approach the credit limit.
5. Cash Abroad: Using a credit card for buying foreign cash is more expensive than withdrawing cash at home. It is better to use a debit card instead or withdraw currency from a bank ATM at the airport to buy foreign currency.
6. Using the Card Abroad: using a card abroad attracts a fee, on each and every transaction. Combine this with the currency conversion rate applied, plus any charges for withdrawing cash and the charges can mount up.
7. Account Management: save time and charges by making payments via your banks online banking site. These can be set up in advance, but must be made in time before the due date, to ensure the money transfers on time.
8. Move money from credit card to credit card to take advantage of interest free balance transfers and effectively borrow money for free. Its even possible to make money by borrowing money, transferring the debt to an interest free card. Invest the cash in a high interest savings account until the interest free period expires.
9. If you have good credit, you should be able to find a credit card with an APR below 12%. Shop around and get the rate you deserve. Do not be afraid of asking for a lower rate on your current credit card if you think you deserve it. A lower interest rate can cut your credit card costs significantly.
10 Another action you can take to save money is transferring your outstanding balances to a credit card with a low APR or 0% APR. Many credit card companies offer low APRs on balance transfers.Take advantage of those offers to save you a lot of money. You need to make sure, however, that the special balance transfer rate is not temporary. Otherwise, you will need to transfer your balance again once the offer expires. You also need to find out if either credit card charges a fee for transferring a balance. The fee might be higher than the money you will save from the lower APR.
11 Some credit card companies issue fees simply for holding their credit card, even if you do not have an outstanding balance (these are called inactivity fees). Close any accounts that currently charge you an annual fee. There are plenty of credit card companies out there that offer their services for free. Make sure to allow about one month between each credit card cancellation in order to prevent your credit score from dropping. Ask the credit card customer service employee to note on your credit report that the account was closed per customers request.
12 You also might want to consider paying your credit card debt with part of your savings. These days, banks only reward your savings account with less rate. But your credit card charges you up to 21% in interest. So you will actually save more money by using your savings to pay your credit card than by leaving it in the savings account. If this is an option you are willing to consider, make certain that you do not drain your savings completely.
13. Now that you are aware of which of your credit cards carry the highest interest rates, pay the most you can afford to those cards. Pay a bit more than the minimum payment on ones that carry the lowest interest rates. Once you finish paying off the card with the highest interest rate, move on to the next highest, and so on until you pay off all your credit cards. This strategy will assist you in getting rid of the credit cards with the highest interest rates first, and leave you to handle the ones that do not charge you as much. You should discipline yourself to always pay more than the minimum required payment on any credit card. This can significantly reduce the time you spend in debt and the money you will pay in interest charges.
Remember to always manage your credit card spending and do
not over spend. It could end up costing you much more than you
bargained for. So, go ahead, buy your card, be the master of
it and not its slave.
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