What Does Fixed APR Mean in Credit Card Terms?
Before you start using a credit card, it's wise to know what you are getting into. You do this by understanding credit card language. The annual percentage rate, also called the APR, on a credit card is important for you to understand, particularly if you intend to carry a balance on your card.
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Identification
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The APR on a credit card is the yearly rate of interest you pay when you carry a balance on your credit card. If you pay your balance in full each month, you don't pay any interest. Credit card issuers must disclose how much interest they intend to charge you when you use the card. Once you know what the APR is on a card, you can shop around for a card that offers you the lowest possible APR.
Types
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The two types of APRs credit card issuers offer are fixed-rate and variable-rate APRs. A fixed-rate APR means that the interest is set and won't change. A variable-rate APR may change depending the index rate upon which the credit card is based, such as the prime rate or the Treasury bill rate. Sometimes credit card issuers offer customers a combination of the two. For example, credit cards sometimes offer low introductory rates that only last for a certain period, at which time the card becomes a variable-rate card. Your credit card agreement must spell out the details.
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Significance
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If you have a fixed-rate APR credit card, your rate can go up, but your credit card issuer must give you a 45-day notice and an explanation of the reason for the increase. If you are 60 days late on paying your bill, your interest rate can go up, even if you have a fixed-rate card. Also, if you are in a workout agreement and you fail to make your agreed-upon payments, your interest rate could go up.
Potential
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If you do get a notice of a rate increase, the increase only applies to balances going forward. Any balances you already have on the card will be subject to the original interest rate. You also have the option to close your credit card once you get a notice that your rate is going up. However, if you choose to do that, your credit card issuer could require you to pay off the balance faster than what you were planning by increasing your monthly payment.
Considerations
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One way to shop around for the best APR is to check Bankrate.com, a website that has an interactive tool to help you find and compare credit card rates. If you want a card with a fixed APR, you will want a low-rate card. You may also be able to get a card that offers a rewards program that offers points or cash back based on what you spend.
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