Choosing Credit Cards Fixed Rate Interest
When you apply for a credit card, it will have one of two types of APR interest rates. The first is a fixed rate with the second being variable rate. Both have their advantages, but most consumers choose fixed rates instead. Credit cards fixed rate interest is popular, but it may not be right for everyone. The best way to decide is to learn what fixed rates have to offer over their variable counterpart.
What Is Fixed Rate Interest
Your credit card contract terms set a period of months or years during which your interest rate cannot change. This fixes your APR so it does not change. Fixed credit allows you to keep an interest rate without worrying about sudden changes in the economy or index fluctuations.
This differs greatly from variable rate APR which fluctuates as financial indexes change. Your credit card company does not control the indexes. If interest rates increase, so will yours. If they decrease, so will yours. The second scenario is the main benefit of variable rate, which may not always happen.
Credit Cards Fixed Rate Interest Disadvantages
While having a rate that does not change may seem ideal, there are a few disadvantages. Before you decide upon a fixed rate credit card, you should know exactly what to expect.
- Rates can drastically increase after a predetermined period
- Fixed rates may be higher than variable rates
- Fixed often starts higher than variable
- May not be eligible
There is no way to determine what the APR may be after your fixed rate period ends. While you may be used to a fixed rate of 9% for three years, you could be facing 17% after the period ends. However, you are open to negotiating new terms at this point.
Since variable rates have the potential to decrease, a fixed rate may not always be the lowest. The best fixed rates tend to fall somewhere between low and mid-range, such as 8% to 12%. A variable rate may decrease to below 8%, leaving you paying a higher fixed rate.
Variable rate cards often entice consumers by starting at a low rate. Companies know they will make money later should rates change. Fixed rates tend to begin at a slightly higher percentage. By starting higher, the credit card company ensures they earn their profit, even if a variable rate increases. The rate is still lower than a variable one should it increase.
If you have poor or bad credit, you may not be eligible for a fixed rate card. These are typically reserved for those with decent credit. It is looked at as a sort of reward for maintaining one’s credit.
Choosing The Best Credit Card Rate
If you carry a monthly balance, you know the importance of having a low APR. You also know how an increasing APR makes paying off and managing debt even more difficult. The reason most consumers choose a fixed rate over a variable is to have that stability. You know exactly what your terms will be from month to month, or at least until your period ends.
At the end of your fixed rate period, you usually have the opportunity to contact your card provider to discuss a new rate. Some companies simply assign you the current APR for another set period. All of this is listed in your credit card terms.
If you want a rate that does not fluctuate, credit cards fixed rate is best for you. If you do not mind taking a chance on changing rates, then variable offers the best chance of receiving a lower rate. Overall, fixed rates are the more responsible way to manage your finances.
Fixed rate interest credit cards explained and comprehensive information about rebuilding credit with a secured fixed rate credit card via our information portal with high quality content written by experienced editors.
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