Credit cards give users the flexibility to make large purchases and pay the money back over a period of time. This can be especially helpful in times of emergencies or making a high-dollar purchase, such as a home appliance or car repair. Credit cards can also be used for other transactions such as balance transfers from one card to another. Many cards offer fixed rates of interest on transfers during an introductory period.
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A balance transfer is when you transfer the debt from one credit card onto another; this is usually done with the intent of saving money on interest, but you need to understand the fine print of your credit card’s introductory, promotional offers to truly save money.
Your interest rate for the balance transfers you make with your credit card will be usually be different once the introductory period is up. It is important to understand how long your introductory period is, and how much your rate will change once it is over in order to get the best deal on an interest rate for transfers.
Many credit cards offer low interest rates for a period of time on transactions such as purchases and balance transfers to attract new customers. The catch is that the introductory period usually won’t last forever. While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 set rules to control interest rate increases, the introductory period will end eventually.
The Act decreed that introductory or promotional rates must last for at least six months and that credit card companies must disclose the term and conditions of the introductory rate in a straightforward manner.
Some introductory rates last for longer than a year, but you must follow all of the conditions of the offer.
One late or missed payment, on any account you have with the credit card company, could nullify the introductory rate. Even if you are on time with every payment, that interest rate will go up. The interest rate you will be charged once the introductory period is over is one of the most important pieces of information to know about your credit card.
Fixed Rate Versus a Variable Rate
Credit card companies label all of their interest rates as a fixed rate or a variable rate. A fixed rate means that the rate will not change without notice from your credit card company. A variable rate means that the rate is tied to some other interest rate, usually the prime rate set by banks; the banks base their rate on the Federal funds rate, which is set by the Federal Open Market Committee. If the prime rate goes up, then the interest rate on your credit card balance transfers also goes up. The credit card companies are not required to give advance notice that a variable interest rate is about to increase.
While most credit card interest rates are variable APRs, there are a few credit card companies that offer fixed interest rates. However, according to SmartMoney.com, a fixed interest rate can be changed as long as the credit card company gives you notice at least 15 days prior to the rate increase. In short, all credit cards have an interest rate that can change.
Furthermore, your interest rates on purchases and balance transfers have conditions other than just an introductory period or a variable interest rate. Missing a payment will increase you interest to a penalty interest rate; these rates are typically 20% to 30%.
Reasonable Transfer Interest Rates
Your credit card’s interest rate is generally based on your credit score. The better your score, the better the interest rate you will get on your credit cards. Most credit cards have the same interest rate for balance transfers as for regular purchases, once the promotional rate is over.
TIME’s Moneyland cited that the average annual percentage rate on credit cards in the beginning of 2012 was over 15%; the average interest rate for balance transfers was 13%. A $100 balance that was transferred using the average rate would be charged an additional $13 for the transaction.
There are also fees added on to most balance transfer interest rate charges.
Common fees might be $5 or 3% of the transfer amount, whichever is greater. In the $100 example, an additional $5 balance transfer fee would be added to the 13% interest for a grand total of $118 owed to the credit card company.
Getting the Best Interest Rate
First, to get the best interest rate on any type of credit, you need to have a good credit score. Pay off your debt as soon as possible and make sure all of your payments are on time. Next, make sure to check your credit card statement often to make sure you understand all charges and any interest rate changes that may be coming.
Lastly, if you don’t like your credit card’s rates, shop for new credit cards using the FREE credit card chaser!
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