There are so many types of credit cards around that it can be hard to work out which is the best. However, one type of card that is quite popular is the fixed rate credit card. Fixed rate credit cards give you the peace of mind that your APR will remain the same for a given time, with all the benefits of a normal card. If you want to know more about fixed rate credit cards, then this article can help you.
What does 'fixed' mean?
A fixed rate credit card is a card that has an APR that will remain constant for a certain period of time. Most fixed rate cards offer a fixed APR for around 3 to 5 years. This means that your interest payments will remain the same during this period.
Why get a fixed rate card?
If you have a fixed income and cannot afford your repayments to rise, then getting a fixed rate card would be a good choice. Even before you spend any credit you can work out what the charges will be over the next months and years. This will help you to budget more effectively and know exactly what you will be paying each month. If you want the peace of mind that your repayments will not change, then a fixed rate card is a good idea.
What are the costs involved?
Although fixed rate cards are by no means expensive, they do generally have higher interest rates than variable rate cards. The lender is taking a risk by offering a fixed rate card, because the base interest rate could rise and they could lose out. This is why the interest rates offered on fixed rate cards are on average 2-3% more than regular cards.
Not everything fixed
Although your APR will remain fixed for the next few years, it is important to remember the other charges involved in credit card billing. The lender might not be able to change the APR, but they can always change the late payment fees or balance transfer charges. If interest rates rise you might find that your charges rise too, leaving you with a card that isn't beneficial.
Variable rate cards
The alternative to fixed rate credit cards are variable rate cards. These cards have an APR that can change, usually in line with the base interest rate changes. Although a card issuer is much less likely to reduce your interest if rates fall, they do have to remain competitive and so this could happen. However, more likely is that your rates will rise year on year.
Is a fixed card the answer?
Although fixed cards have the benefit of keeping your repayments at the same rate over the years, they do have higher interest and unless you really want to keep the interest fixed for budgetary reasons, you would be better to stick with a lower APR card and switch cards if the rate rises too much.
One of the first things you should always look out for in a credit card is the low APR and the low annual fees. Now, it is evident that you can’t have the best of both worlds thus you’ll just have to do with a balance between the two. You can either pay high annual fees year in and year out but save up on interest rates, or you can save on the fees but risk being charged a higher interest. Apparently, the best way out of this is just to clear your outstanding balances each month. However, many of us are not masters of our finances. Lucky for us though, there exists another way to get around the system and that is to obtain cards with variable rates.
Unlike fixed rate credit cards, variable rate credit cards impose APR that fluctuate according to indices such as the Prime rate. The prime rate is dependent on the amount of money that can be borrowed by banks in the United States from the Federal Reserve. Cuts made to these reserves will bring down the rate and thereby affecting the interest rate they charge upon your card. However, great care is taken against the rates falling too low and making the company suffer major losses. Thus, there is usually a floor-rate implemented on these cards. Unfortunately, when prime rates escalate, there are no ceiling-rates to protect card users. Customers have to literally go with the flow if they decide on variable rate credit cards.
On the other hand, it should not be assumed that a fixed rate card will impose APRs that will never change. The term ‘fixed rate’ here would be better explained as a rate that is stable for a longer period of time as compared to variable rate cards. Companies can merely issue you a 30-day notice in writing and your APR can suddenly jump a percentage or two, with or without your consent. One such example is the introductory low APR promotions that companies use to enlist new credit card users. After 6 to 12 months of 0% APR, card companies can immediately change your fixed rate credit card APR to a figure that is higher than most cards without the introductory 0% APR.
Both Peter J Kenny & Adam Goldman are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter J Kenny has sinced written about articles on various topics from Credit Cards, Finances and Banking. Peter Kenny is a writer for The Thrifty Scot, please visit us at and. Peter J Kenny's top article generates over 22200 views. to your Favourites.
Adam Goldman has sinced written about articles on various topics from Credit Cards, Free Credit Report Score and Credit Cards. Adam Goldman recommends Find Credit Cards to find an HSBC NV card. See for more information.. Adam Goldman's top article generates over 22200 views. to your Favourites.