Fixed Rate Credit Card
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There are several factors to consider when applying for a credit card: the annual interest rate (APR percentage), the credit limit, the grace period, charges, fees, etc. What people usually miss is if the APR is fixed or variable.
Fixed rate credit card APR means that the annual interest rate will not change. Well, in case the bank increases it you’ll be informed well in advance. A variable APR is likely to change often. It is usually bound to another interest rate (for example to the prime rate) and this is what’s causing its fluctuations.
Your credit card agreement should state if you are applying for a fixed rate credit card or for a variable rate credit card. Also it should rate how often your interest rate will change.
Variable rate credit card usually offers lower annual interest rate. However you have no guarantee that after an initial period of low APR, it will not increase. The increase might not be dramatic however if it’s followed by another increase you may end up with an unacceptable interest charges. The credit card company is also not obliged to give you a prior notification about the new rates.
A fixed rate credit card is likely to have higher APR. However you can easily calculate what your payments will be and to plan your budget. Have in mind that a fixed rate can also change although credit card companies rarely raise it. “Fixed” doesn’t mean that the interest rate will never change, what it means is that the interest rate is not bound to any economic indicator like the prime rate.
Normally your bank will give you at least 15 days written notice before the rate is changed. In general terms you can refuse the new rate, in which case the bank will probably close your account. If this happens you can pay off the outstanding balance on your fixed rate credit card at the original interest rate.
What can trigger a raise of the interest on a fixed rate credit card is being late with your monthly payments. Even one late payment can boost your interest with more than 10%.
Finally if you are uncertain what kind of credit card is best for you – seek advice from an expert. It’s important that your choice is determined by your circumstances and not blinking adverts for unbelievable deals. And remember that there is no such thing as a permanently fixed rate credit card.
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