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Comparing credit card rates between fixed, variable and teaser rates

By Ryan Levin on October 16, 2011

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There are lots of reasons to consider purchasing a credit card. It’s shiny and convenient, and used responsibly it can help build good credit for the future. But there are dozens, even hundreds of options, and sorting through them can be a challenging task. You want to pay as little as possible for the privilege of using a card, but which is the best deal? What do credit card rates mean as far as how much it costs to use the card?

The first step in deciphering the cost of a credit card is to look at its annual percentage rate, or APR. A card’s APR is the interest rate on the card as it’s measured over a year. But credit card companies don’t collect from you just once a year, they charge you once a month. So if you divide the APR by twelve—for the twelve months in a year—you'll find the amount of interest you’ll be paying on your credit card purchases each month.

Be wary, though. It’s very common for credit card companies to offer a low promotional rate that expires after six months or a year, so you could find yourself suddenly paying interest on a card that you’ve been using interest-free for a long time.

You’ll find it’s often the norm for credit cards to have a variable APR, which means that the interest rate can fluctuate as the market interest rates rise and fall.¹ When you’re considering a credit card, pay attention to whether or the APR is variable, and how high it can be when the market costs are high.

It’s not uncommon for a variable-rate credit card to charge you a higher APR on charges that you don’t pay back at the end of the month, so if you fall into debt, the amount you owe can really skyrocket if you don’t take care of it quickly.

There are also fixed-rate credit cards, in which the APR stays the same on a day-to-day basis. That doesn’t mean the interest rate never changes—the company can change it, but they do so less often, and they have to notify you fifteen days in advance if they do.

A lower APR means lower interest rates, which is better for you as a cardholder. Not everyone can get the cards with the lowest interest rates, though. Many credit cards have a minimum credit score requirement, and the lower the card’s APR, the higher a credit score you’ll likely have to have to qualify for one.

Fortunately, there are plenty of credit cards available with reasonable rates to those with bad or no credit, and maintaining a credit card account with timely payments for a few years can go a long way towards improving your credit score.

A credit card’s APR is only part of the picture as far as what the card costs. Many cards cost an initial fee or an annual fee on top of the interest they charge for using the card. If you find a card with a lower APR than you normally see, you can bet they make up for it using a fee that you pay yearly, regardless of how much you use the card.

If you pay attention to the rate that a credit card charges, and read the fine print to find out about extra charges and fees, you can make a good decision about which credit card is best for your needs.

Reference:
¹ http://www.ehow.com/about_4600806_apr-variable-mean-credit-cards.html

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