Credit Card Interest Rates Demystified

By: Aaron Walker

Rates is an overused word when it comes to credit cards, there are so many of them, several on each card, that anybody would think the card companies were just trying to fool us. However, once you know the difference between your fixed and variables, and what on earth all those abbreviations stand for, you should be able to understand your card better.

The main reason for rates is so that your credit card company can work out how much to charge you, whether this is for outstanding payment, taking out a loan or cash advance, and for balance transfers. All of these rates are normally quoted annually, like the APR, which stands for annual percentage rate.

We'll start with the APR. This is the annual interest you are charged and the bank use it to work out how much interest to charge you each month if you had that amount outstanding for a year, i.e. your APR divided by 12. There are two types you can have.

* The first is fixed APR, which is a rate that is arranged by your bank and cannot be changed unless the card's contract is renewed. If you have a fixed APR, the rate will not be changed very often.
* The second is ongoing APR and is a type of interest that can be changed at any time despite contracts being signed and even after the grace period.

* There is in fact a third type, though less common, referred to as Special APR. This is a type that is specifically tailored to your needs or credit rating, and could have anything attached to it as long as it is agreed in the contract.

With both main types of APR, you must be aware that they depend of your consistency in paying the bills if you ever ask for your rate of APR to be changed and also if provisions made by the government were made concerning your credit card's APR.

The other rate is the interest rate. There are also two types here.

* Fixed interest rates are those that are not changed unless your bank issues a 15-day notice to all its users (which is required by law) before it implements the changes.

* Variable interest rates can change whenever and do so every time the base rate of interest changes. These interest rates are very unpredictable.

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