Everything you need to know about Credit Card Interest Rates
One of the most important features of a credit card is the interest. It affects the cost of carrying a balance on your credit card, a price you probably want to minimize or even eliminate. Here’s what you need to know and understand about credit card interest so that you can better manage your existing credit cards and choose the best credit cards in the future.
How interest is calculated?
The credit card is expressed as an APR or annual percentage. A list of all APRs for a credit card will be found in the credit card disclosure. The interest currently being applied to your balance on your account statement, along with each scale.
Most credit cards have a grace period in which you can pay your credit card balance in full and avoid paying interest. The possible balance, after the grace period, left an amount of interest in the form of a financial charge.
The financing costs are calculated in different ways, depending on your credit card terms. Some credit card issuers calculate financial charges based on your average daily credit card balance, the balance at the beginning of the cycle, or the balance at the end of your billing cycle. Financial charges may or may not include the new purchases on your credit card.
Fixed versus variable interest rate
There are two basic types of credit card interest – fixed and variable. Fixed rate may change only in certain circumstances and the credit card company must send it in advance before setting your rate.
Variable interest rates, on the other hand, are linked to a different interest rate (the prime rate, for example) and can change the index price changes each time. Your credit card company does not have to specify in advance if the variable changes rate – if the change is due to an increase in the index rate. The majority of the credit card interest is variable.
Your credit card may have different APRs for different types of balances. For example, your card can have an April purchase, cash advance April and balance transfer April. Each of these interest rates may differ. Your card can also be a April penalty that goes into effect when you default on your credit card terms, for example by making a late payment.
When you make a payment with a credit card that has different credits at different APRs, any amount above the minimum payment must go to the balance with the highest April
Periodic interest rates
Credit cards also have a periodic interest rate, which is really just another way to April regular for a period of time less than a year. The periodic rate for monthly interest is simply the April divided by the number of months per year, for example 18% / 12 or 1.5%. Periodic rates are more often based on a billing cycle of less than a month. In that case, the periodic interest is calculated as (April / days in a year) * days in a billing cycle. The daily price is a periodic calculated by dividing the April by the number of days of the year (365 or 366 in a leap year).
When the interest can increase
Your credit card company can only raise your interest at certain times: if you default on your credit card terms, the index rises, a promotional rate expires, or when changes are made to a debt management plan.
How to opt out of an interest rate increase?
If you receive an interest rate increase message, you have the right to opt out of the new interest and continue to pay your credit card balance at the old rate. Your credit card company may decide to cancel your credit card if you opt-out, but you do not have to pay the higher interest. To opt-out, simply send an opt-out letter to your credit card company within the opt-out period.
How to Avoid Paying Interest?
At most credit card balances, you can avoid interest by paying the full balance stated on your credit card. With certain balances, such as cash advances and balance transfers, it is not that easy to avoid paying interest because these balances do not have a grace period. In that case, your best option is to minimize your interest costs by paying off your balance quickly.
The more you understand your credit card interest, the better you can use your credit card to save your benefit and money on long-term interest.