APR, or an annual percentage rate, often matters the most when you decide what credit card to apply for. It is the strongest indicator of your financial charge. Nobody wants to pay a high APR. However, there are more types of interest rates than just "low" and "high". You can often find a credit card that comes with several different APRs: an introductory interest rate on balance transfers, a variable APR on purchases and a high default interest rate. If you want to apply for the most beneficial offer, it makes sense to find out what these interest rate types mean.

Interest is the price that people need to pay for the temporary use of someone else's funds. In order to repay credit, a borrower has to pay interest, as well as the principal - the amount originally borrowed. If the APR is 10%, and you borrow $100 for one year, you have to repay the $100 plus $10 in interest.

There are several different types of interest rates. Let's have a close look at their peculiarities to find the best credit card.

A Fixed Interest Rate

If your credit card comes with a fixed APR, it means that the rate will not change until your creditor decides to raise or lower it. A fixed APR is usually higher than a variable rate, but you can be sure of the exact amount of interest you will need to pay at the end of each month. Your APR will not change under the trend of overall interests rise.

A Variable Interest Rate

A variable or a "floating" rate will change together with the fluctuations of certain indexes it is tied to (the Prime Rate, LIBOR, T-Bills, and others). Typically, a variable APR is based on the Prime Rate published in the Wall Street Journal. Fortunately, it doesn't change too frequently.

These days, more and more banks are offering credit cards with a variable APR instead of a fixed interest rate. It might be a fair practice, because lenders want to be able to adjust your interest rate to the present day economic situation.

An Introductory Interest Rate

An introductory APR (also known as a teaser rate, a promotional rate or a limited-time rate) is a special rate that a credit company offers you for a limited period of time. This feature helps lenders attract new customers because an introductory rate is very favorable: you can find offers with 0% on purchases or balance transfers, or even both.

Typically, introductory rates last up to 12 months, but you can find special offers which come with an introductory period of up to 15 months. When the promotional period expires, you will be shifted to a regular APR that can be higher. So take into consideration the length of introductory periods.

A Default Interest Rate

Reckless and ill-considered money management can change your credit card terms for worse. If your make late payments or fail to pay at least the minimum amount, you can be switched to a default APR (also called a penalty rate) which is actually much higher. For example, if your ongoing interest rate is 10% and you go delinquent, the lender may raise your APR up to 29.99%.

Rather than having these charges apply to you, exercise a little caution and financial discipline to enjoy rewards programs and other benefits of credit cards. It is possible to come back to your regular APR, but it will take lots of time, patience and responsibility.

Comparing credit cards by interest rates is the fastest and most simple method of choosing suitable credit card offers. Have a close look at all APRs that credit cards provide. Ask the questions, determine the best options for your financial situation and apply for the credit card that matches you most.

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Comments

Jefferies, 12:26 AM, August 11, 2008
The best interest rates are zero interest rates!

Albert D., 12:23 AM, September 22, 2008
I agree about zero rates!

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