Interest on Credit Cards Explained
The interest rate is the annual cost of borrowing money. Interest rates on borrowed money are known as an annual percentage rate or APR.
As a credit card owner, you should know how much interest you are being charged by your credit card issuer. Keep in mind that credit card interest rates are quite high, compared to other types of loans.
Interest charged on credit cards is usually dependent on a range of factors. You need to stay informed about the interest on your credit card and make sure that you can afford repayments.
Most credit cards have a grace period – the period of time that you can pay your credit card balance in full and avoid paying interest. This period is usually 55 to 60 days.
There are two basic types of interest on credit cards:
- Fixed- this interest rate doesn’t change.
- Variable – this interest rate is tied to the prime interest rate.
It’s important to keep in mind that your credit card may have different APRs for different types of balances.
Credit card issuers can, at their own discretion, increase interest on credit cards if you default on payments.
With most credit card balances, you can avoid having to pay interest by simply paying your credit card balance in full at the end of every month.
You get charged interest on credit cards on a daily basis. To find out what your daily rate is, divide your APR by 365. This number is called the periodic interest rate.
Your credit card interest rate depends on a variety of factors, including your credit score, the type of card you have and the type of lender. Low credit scores usually mean higher interest rates.
To lower your interest rate, work on improving your credit score.