- The APR on a credit card is the way that the credit card company makes money from it's customers--you are basically paying the company to borrow money. APRs are usually around 10 to 13 percent, but can be much lower or much higher. Your credit score will determine what rate you qualify for, so having a good credit score is the best way to make sure that you receive the lowest possible rate.
- Understand that 0 percent APRs are somewhat rare and are usually offered as a teaser or introductory rate to customers with excellent credit. They can be offered on new purchases or balance transfers, or a combination of both. Credit card companies often offer temporary 0 percent APRs in conjunction with a balance transfer offer, hoping to lure customers with high balances on other, high APR cards to move the money to their company. After the introductory period, which usually lasts six months to a year, the interest rate resets to a higher rate and the new company can start earning interest on the debt.
- Occasionally, a credit card will offer a 0 percent interest rate for the "life of the balance" on a balance transfer. These can be excellent deals, but you must read the fine print carefully. Customers are often required to make new purchases each month, which are subject to a higher APR, and all payments are applied to the 0 percent balance until it is paid in full. Therefore, the customer ends up paying interest on all of the new purchases.
- The terms of the 0 percent offer should be clearly stated in the terms and conditions of the credit card. There may be other fees and costs involved, so be sure to read the fine print. Also, take careful note of the expiration date on the 0 percent offer and the regular APR for the card. Frequently, 0 percent APR cards have a very high interest rate after the introductory period.
- Many retail store credit cards offer 0 percent financing or 0 percent APR credit cards, but their terms are usually much more onerous than those of regular credit cards. For instance, store cards may offer 0 percent on purchases for 24 months, but if you have not paid off the balance completely at the end of the 24 months, all of the interest that you would have accrued on the full balance over those 24 months is tacked on to your account. Credit card users must be aware of these situations and pay close attention to due dates and deadlines.
Comments
tjzerrer said
on 7/9/2009 Great information. I guess the only way to get out of the debt trap is to take care of your finances and earn more than you spend.