Which Low Interest Credit Card Is Best - Variable or Fixed Interest Cards?

Posted by nick_niesen on October 29th, 2010

When applying for low interest credit cards, you may think you know what you are looking for. After all, it seems pretty clear. The lower the APR, the less money you will have to pay, right? In reality, this is not always the case. In fact, one factor you will need to take into consideration is whether the APR is variable or fixed. Then, you can make a far better decision when choosing from among the available low interest rate credit cards on the market.

Low Interest Credit Cards with Variable Interest Rates

Low interest credit cards with variable interest rates are those that fluctuate with the prime rate. The prime rate is the rate top United States banks pay to borrow money from the Federal Reserve. Therefore, you will often see interest rates written as the prime rate, plus an additional percentage APR in order to provide the bank with a profit.

When the prime rate is in a downward swing, as it has been in the past few years, these cards can be quite attractive to the consumer simply because the APR is lowered. On the other hand, these cards can have skyrocketing interest rates when the prime rate is soaring. In addition, many credit card companies place a minimum APR on the cards. This means the APR will never fall below a specific rate, regardless of where the prime rate stands. At the same time, your interest rate will increase as the prime rate increases - and you won't see credit card companies placing caps on how high these rates can become.

Low Interest Credit Cards with Fixed Rates

Low interest credit cards with fixed rates are those with interest rates that do not fluctuate or change. For example, if a credit card offers a 7.99% fixed interest rate, it means the interest rate will not become higher or lower that 7.99% - no matter what the prime rate may be. A word of caution, however: credit card companies have the right to change a fixed rate to a higher fixed rate by simply sending you a 30 day written notice. These notices can be very unassuming and in small print, and simply slipped in with your monthly billing statement. Therefore, it is important for you to read all paperwork included with your bill and to keep an eye out for changes in your fixed rate.

The Introductory Rate

When you shop through the numerous cheap credit cards available, you most likely pay the majority of your attention to the introductory rate. Usually, introductory rates on low interest rate credit cards are minimal and fixed. In fact, it is not unusual to see cheap credit cards with APRs of 0.00%. What you need to look at, however, is the APR after the introductory period is complete and whether it is variable or fixed. This is particularly important if you do not foresee yourself being able to pay your balances in full after the introductory period is complete.

The post-introductory period rate is often referred to as the "go rate." With most low interest credit cards, the go rate is variable and based on the prime rate. The go rate is not always the same from customer to customer because credit card companies generally offer better APRs to the customers with the best credit history.

Deciding Which is Best

Determining which of these types of low interest credit cards is best for you depends on your financial situation. If you pay your balance in full at the end of each billing cycle, it really doesn't matter if your rate is variable or fixed. On the other hand, it can be incredibly important if you do carry a balance. The perk to a fixed rate is that you are always sure of what your interest rate will be from month to month, so long as you make sure to read all information inserted along with your bill each month. This makes it easier to plan a budget and keep a closer eye on your finances. At the same time, you might save money in the long run by taking advantage of low interest credit cards with variable APRs when the prime rate is low. If you are disciplined enough to keep an eye on the fluctuating market and to take advantage of cheap credit cards when the rate is low, variable APR cards may be your best bet.

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