Many credit card
companies use the term low APR to promote their credit
card offers. But how do you know if the card you are
applying for is really a low APR credit card? To
determine whether this is accurate or not, you're
going to have to look at the fine print of these
claims.
Here is some basic
interest rate information to help you determine if a
"low
APR credit card" is really "high
interest rate credit rip-off".
Keep in mind that
interest rates are variable. Credit card rates are set
by adding a spread, or margin, to a base rate. Your
base rate is often a widely used index rate, which is
almost always a rate that changes periodically,
without warning and for no reason.
The spread that is
added to calculate your rate depends on your credit
history. If you pay your bills consistently and on
time, the spread may be as few as 2 or 3 percentage
points. If your credit history reveals that you make
late payments, or have too much debt, the spread may
be 5 or 6 percentage points or more.
The advertised rate on
a credit card is often the card's simple interest
rate. The effective interest rate, however, is your
true cost of borrowing and includes annual fees you
pay to use the card. The compounded interest rate is a
better barometer of your effective interest rate. For
example, if your card has a rate of 12%, your monthly
rate would be 1%. Because credit card interest is
compounded monthly, the effective annual interest rate
on a 12% simple-rate card is 12.68%. By doing a little
research, you could save yourself a lot of money in
interest in the long run.
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