Credit Card Inform
Credit Card Interest Rate
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Interest on a loan is the price you pay to borrow money. The higher the interest rate, the more it costs you to borrow that money. A credit card is nothing more than a way to carry around a credit card account number. The account number is provided to a credit card holder by a credit card issuer. A bank, or other financial institution can be a credit card issuer.
When you use a credit card to make a purchase, information about amount of the purchase, along with the account number, is sent to the credit card issuer. The credit card issuer then provides the requested amount of money to the corresponding merchant. Rather than being indebted to the merchant, you become indebted to the credit card issuer.
Once money is borrowed from the credit card issuer to make a purchase, you begin paying interest on the money. The amount of interest, or the cost of borrowing money from the credit card issuer, is called the interest rate.
Interest rates vary greatly from one credit card to the next, and there are numerous factors that determine what your interest rate will be. Credit card interest rates often change over time, and you will have to watch your credit card statement closely if you want to know how much your are paying to borrow money.
In general, people with a higher credit score are offered lowered credit card interest rates compated to those who have a lower credit score. A credit score is a representation of the risk a creditor must take when loaning you money. So due to a preceived risk, people with a lower credit score may have to pay more to borrow money. This is true for more than just credit cards. Car loans, home loans, and other loans may all be influenced by your credit score.
Grace Period:
Many banks provide an exception to their normal method of calculating interest, in which no interest is charged on an ending statement balance that is paid by the due date. Banks have various rules. In some cases the account must be paid off for two months in a row to obtain the discount. If the required amount is not paid, then the normal interest rate calculation method is still used. This allows cardholders to use credit cards for the convenience of the payment method (to have one invoice payable with one check per month rather than many separate cash or check transactions), which allows them to keep money invested at a return until it must be moved to pay the balance, and allows them to keep the "float" on the money borrowed during each month. The bank, in effect, is marketing the convenience of the payment method (to receive fees and possible new lending income, when the cardholder does not pay), as well as the loans themselves.
Promotional Interest Rates:
Many banks offer very low interest, often 0%, for a certain number of statement cycles, on certain sub-balances ranging from the entire balance to purchases or balance transfers (used to pay off other accounts), or for buying certain merchandise in stores owned or contracted with by the lender. The cardholder gets lower interest, the payee gets more sales, and the bank gets a chance to increase income by having more money lent out, and possibly an extra marketing transaction payment from the payee or sales side of the business for helping to make the sale (in some cases as much as the entire interest payment, charged to the payee instead of the cardholder).
Making sense of your interest rate:
Credit card offers are often complex, requiring the credit card holder to work to understand the terms of the offer, and possibly to pay off the sub-balance by a certain date or have interest charged retro-actively, or to pay a certain amount per month over the minimum due (an "interest free" minimum payment) in order to pay down the sub-balance. Methods for communicating the sub-balances and rules on statements vary widely and do not usually conform to any standard. For example, sub-balances are not always reconcilable with the bank (due to lack of debit and credit statements on those balances), and even the term "cycle" (for number of cycles) is not often defined in writing by the bank. Banks also allocate payments automatically to sub-balances in various, often obscure ways. For example, they may contractually pay off promotional balances before higher-interest balances (causing the higher interest to be charged until the account is paid off in full.) These methods, besides possibly saving the cardholder money over the expected interest rate, serve to obscure the actual rate charged by the bank. For example, consumers may think they are paying zero percent, when the actual calculated amount on their daily balances is much more.
Average Credit Card Interest Rate:
According to IndexCreditCards.com, which tracks the industry, credit card rates hit an 18-month high in July. The Web site’s review of rates offered by issuers including American Express, Bank of America, Chase and Citibank found that the average rate on consumer cards was 14.94 percent, more than a full point higher than in March.
