Because credit cards charge interest rates differently and have different grace periods, they can affect your credit differently depending on how you use them. For example, if you pay your balance in full every month, you don’t need to worry about how much interest your card charges; the main thing to consider when choosing a card is its features and rewards, such as cashback or travel points.
Different Types of Interest Rate
There are two kinds of interest charges that you can incur from using credit cards. They are the annual percentage rate (APR) and penalty APR.
The APR applies when you carry over a balance from one month to the next or if you don’t pay your total balance within the grace period on your monthly statement date. According to the experts at SoFi, “Your penalty APR kicks in when you make late or miss payments entirely, and it can double the interest amount applied to your account balance.” In some cases, a penalty APR may be applied in addition to regular APR when you’re late paying a bill.
One thing to understand about these two different types of interest rates is that banks can charge you for both—one on the card balance and one on new purchases. Some credit cards charge interest on both, while others only charge interest on the balance.
What is a Fixed Rate?
A fixed rate is an interest rate that will not change during the life of your loan. So your monthly payment will stay the same, even if market rates rise.
What is a Variable Rate?
A variable rate is an interest rate that can change over time. Variable rates are often tied to an index, such as the prime rate. So when the index changes, so do your variable rates.
What Are Introductory Rates and How Do They Work?
Introductory rates usually last between 6-12 months and typically lower the annual percentage rate (APR) by a certain amount, such as 0.25%.
Introductory rates can help you get back on your feet financially if you need some breathing room for a short period. Remember that introductory rates only apply to purchases, not cash advances or balance transfers.
What is Compound Interest?
Your compound interest is the total interest you owe on your credit card balance. This includes any new purchases you make and any previous balances you may have carried over from month to month.
Interest charges are vital to understand and manage, especially if you carry a balance from month to month. Eventually, they reduce the amount of money you have available to spend or save until you pay off your balance.
Why Should I Pay Attention to My APR?
Your APR is the rate at which your credit card issuer charges you interest on unpaid balances. Therefore, you must pay attention to your APR because it can significantly impact your overall costs.
Is There an Annual Fee Associated With My APR?
No, there is not an annual fee associated with your APR. Remember, Your APR is just the rate at which your credit card issuer charges you interest on unpaid balances.
What Can I Do if I’m Unhappy With My APR?
You can try to negotiate a lower APR with your credit card issuer. If that doesn’t work, you can look for a balance transfer credit card that offers a 0% intro APR period.
Your credit card’s interest rate policy will be clearly stated in the card’s terms and conditions. You’ll want to take a few minutes to review those before you apply.