Many credit cards charge interest every month, meaning if you make a purchase with your card, you’ll end up paying for it over time. However, there are some benefits to using credit cards as opposed to cash or debit cards. While the interest may seem daunting at first glance, here is everything you need to know about credit card interest rates and fees before signing up!
Credit card types – There are three main types of credit cards: Visa, Mastercard and American Express. Each type offers different terms and conditions with regards to repayment of principal and interest.
What are credit card interest rates?
Interest is a fee you pay on money you borrow. The interest rate is set by the credit card company based on your creditworthiness, and it’s usually expressed in annual percentage rate (APR). For example, if your APR is 20%, that means you’ll be charged 20% no matter how much you charge. Some cards offer variable APRs which fluctuate along with the prime rate — this can be good if rates go down but bad if they rise. However, fixed rates are considered more stable and predictable for budgeting purposes.
How much interest can I expect to pay? The amount that you’ll pay in interest will depend on how much you borrow and for how long. A general rule of thumb is the longer you carry a balance, the more interest you’ll be charged. It’s a good idea to pay off your statement balance every month so you can avoid paying interest. Using your credit card responsibly and paying it off in full is the key to avoiding high credit card costs, including interest fees. It can also help improve your credit score which makes it easier to get approved for loans in the future, such as mortgages or student loans.
Can I avoid paying credit card interest? It’s possible to keep your credit card interest in check by paying off your balance in full each month as well as keeping a close eye on your credit score. Your credit score plays a large role in determining the terms you’re offered, so it’s important to make all of your payments on time and keep debt levels low. If you’ve been denied a card or received an expensive offer, it may be that the bank or lender has concerns about the potential risk associated with lending you money. Paying bills on time is the key to improving your credit score, so set up automatic payments and don’t put anything else on the card.