Understanding The Difference Between Low Annual Interest Rates And Balance Transfer RatesMay 18, 2010 - 2:00 am
Today’s society is one that relies more on plastic than on money to pay for products and services. Debit cards and credit cards are the norm for the majority of consumers. Debit cards withdraw funds directly from your bank account. If there is no money in your account, then you cannot make a purchase. Credit cards, on the other hand, are like small loans extended to consumers for small or large purchases. They can be used at retailers, for gasoline, groceries, and practically anything else. The number of credit card types available from every financial institution is staggering. There seems to be a credit card to suit every individual, business, and budget out there. Credit card companies make their money on interest rates, which are charged on the balance that is sitting on the credit card. There are several different types of interest that are charged.
Some credit cards promise you a low annual interest rate. On average, the interest rate on credit cards runs about 16%. This is quite high if you consider that most people have a balance on their card of hundreds or thousands of dollars. Having such a high interest rate rakes in money for credit card companies and it hinders consumers from being able to pay off the full balance on their card. On your credit card application, you can specify if you prefer a card with a low annual interest rate. Many companies offer rates that are at least 5 or 6% less than the norm. This low rate is in effect for a certain number of years and then can be changed.
A balance transfer rate is a totally different type of interest rate. If you have high credit card debt, it doesn’t really seem to make sense at first to make another credit card application, but this can actually save you money. If you transfer the balance from an old credit card to a new one, you are usually offered a very low introductory interest rate, which could be anywhere from 0 to 2%. You can take advantage of this grace period to pay off the balance of your card without having a huge interest added on. You need to be very diligent and make sure that you pay off the money owed before the interest rate climbs up again.
If you are comparing different credit cards that are available, you should research all options, including what benefits and advantages they can offer you, interest rates, and terms and conditions. Talk with your financial institution and see what type of card would best suit your financial needs and budget. Make sure that you pay your monthly payment to keep your credit in good standing.