When it comes to choosing a credit card that can help you maintain financial stability, one of the most important factors to consider is the interest rates. Credit cards come with an abundance of fees and rates, and it’s of utmost importance to keep track of them, and of course, pay them off on time.
Considering how the average American household has a credit card debt of $5,700 (US Census Bureau), reading the fine print of the Pricing and Information from your issuer is a must, otherwise, you risk incurring more fees, damaging your credit score, and increasing your interest rates.
There are plenty of low interest credit cards that can help you make the most out of your card, but low interest doesn’t equal 0% interest. So, let’s take a closer look at what exactly interest rates are, how they’re calculated, and when they’re charged, and see all the benefits that low-interest credit cards bring.
What Exactly Are Interest Rates?
Essentially, your credit card’s interest rates are the price that you have to pay for borrowing money from your card issuer. Since credit cards are loans, your credit card issuer will, in most cases, require you to pay a fee for borrowing money.
This fee is known either as an interest rate or as an annual percentage rate (APR). While with some financial products, interest rates and APRs are distinct charges, they both refer to the same thing with credit cards.
Most credit card issuers offer credit cards with variable interest rates, and the rate you’re charged depends mostly on your creditworthiness and your credit score. If you have excellent credit, you can expect to get more favorable interest rates. If you have poor credit, you’ll mostly encounter higher interest rates.
When Are Interest rates charged?
Interest rates are charged only if you carry a balance on your credit card. If you always pay your credit card debts in full, you can benefit from a card with higher interest rates.
If you cannot always pay off your credit card debts on time, it’s important to look for low-interest credit cards.
The average credit card interest rate is around 18%, but it can go up to over 30%, so looking for low-interest credit cards is probably your best choice.
Certain credit card issuers might offer a grace period to their cardholders. This is a period of time, typically from the end of the billing cycle to your next payment due date, when no interest will be charged on your new balance. You should check with your issuer whether they have a grace period.