|
April 19, 2001
By
Bob Buckham
Website:
http://www.best-free-credit-cards.com
>
Credit Card Rate: Variable vs. Fixed Rate Types of Credit Cards
Credit card companies that issue variable credit card rates use indexes such as the prime rate, the one-, three- or six-month Treasury Bill rate, and the federal funds or Federal Reserve discount rate. (Most of these indexes that determine credit card rate can be found in the money or business sections of major newspapers.)
Once the interest rate corresponding to the index has been identified, the credit card issuer then adds a number of percentage points -- called the margin -- to this index rate to come up with the credit card rate the consumer will be charged on various types of credit cards. In some cases, the issuer might choose to use another formula to determine the rate to be charged. These issuers multiply the index or index plus the margin by another number, the "multiple," to calculate the rate for various types of credit cards.
Take a good look at the credit card rate for fixed rate plans. They may be a couple of percentage points higher than the variable rate types of credit cards, but you will have the advantage of knowing what your interest rate will be. Variable rates are just that -- they change -- and can increase (usually the case) or decrease your finance charges you pay on these types of credit cards.
If your credit card rate is fixed, the Truth in Lending Act requires the lender to provide at least 15 days notice before raising the rate on these types of credit cards. In some states, there are laws that require more notice.
Some financial analysts argue that because a fixed credit card rate can be increased with only a 15-day notice, these types of credit cards are not that different from a variable rate plan, which is subject to change at any time. They advise looking closely at both types of credit cards. If you do choose from among the variable rate types of credit cards, check to see if there are caps on how high or how low your interest rate can go. If the lowest variable rate possible on your cards, for example, is 15.9 percent and rates are trending downward, you may want to switch these types of credit cards to another lender.)
Few experts will argue with the fact that a low interest rate is a good thing. To illustrate the importance of a low interest rate, let's look at a simple example of how much your annual savings might be if you switch to one of the lower interest rate types of credit cards that have no annual fee. In this case, the average monthly balance carried forward equals $2,500, which is about the national average for consumers with credit card debt. Total annual savings in this example -- $120.
So now you know a little bit more about the different types of credit cards and credit card rates.
For
more information on credit card rate - click here!
> About The Author:Bob Buckham is a successful author and the
publisher of http://www.best-free-credit-cards.com. Many have commented that his website offers the best recommendations, links and information on credit cards. *Webmasters,
need free content for your website? This free
article and many others may be reprinted providing the
hyperlinks are left intact... more
*Authors,
start or further your writing career
or hobby by allowing us to match your articles with dozens
of webmasters in need of fresh content... more
|
