A very important feature that can’t be overlooked when it comes to credit cards is their interest rates. They are so important because it influences the card’s balance carrying cost. This cost is something you most likely want to eliminate or at least reduce to the barest minimum.
Hence, we will be discussing everything you have to know about kredittkort interest rates. This way, you will be better equipped to manage your cards and/or select the best cards.
How Is Interest Charged?
Your kredittkort rate is the annual percentage rate, abbreviated as APR. Click here to learn more about APR. On the card’s disclosure, you should see the card’s APRs.
The majority of credit cards offer a period of grace during which the balance can be paid fully without interest. But if the balance isn’t paid fully once this period elapses, interest will then be charged on the remaining balance usually as finance charges.
This charge typically can be calculated in different ways, based on the terms of the credit card.
Some ways finance charges are calculated are according to the:
- Balance when your billing cycle ends
- Cardholder’s average daily balance
- Balance when your billing cycle begins
How Interests on Kredittkort Debt Pile Up
Let’s say your APR is 15 percent and your kredittkort debt is 1000 dollars. If you make a 25-dollars minimum payment every month, you’d end up with a 400-dollars interest. You will also end up using about 56 months paying off both the initial 1000 dollars debt and 400 dollars interest.
Variable vs. Fixed Rates
Credit card rates are of two main types; variable and fixed. Fixed rates just as the name implies are fixed, so they can only be changed in some circumstances. Before your fixed-rate gets changed, your kredittkort issuer must first send an advance notice.
On the flip side, variable rates are linked with another rate, for instance, prime rate. Because of this, variable rates can change each time the linked rate changes.
Also, if you are operating with variable rates, your kredittkort issuer does not need to send an advance notice when it changes. This is so far the rate’s change is due to the index rate’s change.
You’d mostly find credit cards with variable rates than you’d find those with fixed rates.
Different APRs
Sometimes, you may have more than one APR on your kredittkort with each APR meant for a specific type of balance. For instance, your card could have a balance transfer, cash advance, and purchase APR. These APRs most likely would be different.
Penalty APRs may also be on some cards. This typically becomes effective once you do not adhere to the terms of the card; for instance, when your payment comes in late.
When a payment is made to a card with different balances and different APRs, amounts that are more than the card’s minimum payment are sent to the highest annual percentage rate balance.
When Can Your Interest Rates Increase?
Your kredittkort issuer can increase your kredittkort renter when any of the following occurs:
- When the terms of the cards aren’t adhered to. Like when your payment is due for more than sixty days
- Increased index rate
- When a debt management strategy is made and the changes go into it
- You were on a promotional rate and it expires
Opting Out of Increased Rate
As we have said, for fixed rates the issuer needs to send an advance notice before they can be increased. Also, for variable rates, if the increase isn’t due to an increased index rate, a notice is required.
If you get an increased notice, you’re entitled to withdraw from paying the increased rate. If you do this, you can continue to pay off your existing balance at your current rate. But the credit card can get canceled by your issuer as a result. However, you will not pay the increased rate.
To do this, all you have to do is send your issuer a letter expressing your wish to opt out. Also, make sure you do this within 45 days after receiving the increased notice.
Avoiding Interest Payment
You could avoid paying any interest by ensuring you fully pay your balance on the card statement before or on the payment due date every month.
However, with some balances like balance transfers and cash advances, you can’t avoid interest that easily. This is because these balances do not have a period of grace.
Therefore, in cases like these, your best bet is to reduce the interest as best as you can by ensuring you pay off the balance quickly.
How to Get a Good Rate
Interest rates vary from one card issuer to the other. Some may be very high while others are relatively lower. So, for you to get a good deal, it is advisable to check around first.
However, the kind of deals you’d typically be eligible for would be based on your credit. If you have a good credit score, you’d be considered less risky, so you can get credit cards with good rates. But a fair or poor credit score may make you only eligible for credit cards with high interests.
Conclusion
Understanding kredittkort interest rates can help you better understand your card. With this knowledge, you can advantageously utilize your card so that you can save cash on interest. If you do not understand how your card is raking in these interests, you most likely will find yourself being overwhelmed by them.
