Credit card interest rates are the most significant reason people get into debt. If you don’t understand how it works, how can you expect to beat it? The answer is simple. When you borrow money from a bank or credit union, they have to make their money back somehow. It’s called interest. When someone goes into debt with a credit card, the credit card company loans your cash for whatever you’re buying and then charges you an interest rate on top of it. If you’re late, the interest rate goes up. People are less likely to pay their debts if they’re past due.
How Credit Card Interest Rates Works
There are two types of interest charge on credit card. The general term is APR, which stands for Annual Percentage Rate. This type of credit card interest rate measures the amount you will pay overall if you borrow money for one year. You can find out your annual percentage rate by calling your bank and asking them what your APR is. You will find this number listed on your credit card bill as well.
Variable vs Fixed
Interest rates are of two types – fixed and variable. A fixed APR means that the interest rate remains the same throughout the period that you’re borrowing money. Variable APRs change from time to time, according to the prime rate. An excellent rate is a number that represents an average of all of the interest rates set by banks and credit unions for everybody who has a checking or savings account. If the bank wants to charge more money for their services, they increase the prime rate. As a result, people will have to pay a higher APR on their credit cards. Variable APRs are primarily found in-store credit cards and balance transfer cards. Both keep your interest rate low for a limited amount of time when you open the account.
With a higher credit score, you will be able to get a lower interest rate. People with higher credit scores are more likely to pay their debt back on time. Higher credit scores also minimize the amount of interest the bank has to charge them for using their money. Expect to pay more in interest if you have a low credit score. According to the experts at SoFi, “Some credit cards provide an interest-free period when you open them.” These cards will help you manage your finances better.
Keep in mind that there is no such thing as a reasonable credit card interest rate. If you’re using your credit card and paying more than 15% APR, then you’re paying too much! It’s essential to pay off the entire balance of your card every month so that you don’t have to worry about that high monthly interest rate. On the other hand, if you’re only paying the minimum amount, then it’s time to do something about your high-interest rates!
To ensure that APR isn’t an issue, pay off your entire balance every month. Just be aware of how much interest you are accruing and ensure that you don’t let yourself get into too much debt.