Credit card interest rates – I’m sure you know this is one way credit card companies make profit. You probably also know the reason you get charged interest is because the credit card company is allowing you to spend their money. They are allowing you to use their money for a fee. The longer you use it, the more the fee adds up. The fee they charge is a percentage of the balance owed, and that percentage is the interest rate of the credit card.
Credit card interest rates, unlike regular loan rates, are compounded. This means you are paying interest on interest, which makes it easy to accumulate debt. When the balance remains unpaid for long periods of time, the interest charges can increase to such a degree that you can actually pay twice (even more) as much as the original purchase amount charged on the credit card.
You also need to be aware that a single card may carry different credit card interest rates depending on different categories of use. Some of these categories are purchase interest (for purchases), cash interest (for cash withdrawals), special interest (such as transfer fees), and on top of all these is the compounded interest or interest on interest.
This just goes to show that paying just the required minimum every month rather than paying your card charges in full will do you more harm than good. Many are tempted to just pay the minimum because it is such a small and manageable amount. But, if you take into consideration the compounded interest imposed by credit card companies, you would want to pay off your balance in full every month. Paying the minimum, in most cases, will result in your debt growing larger and larger as the months pass.
This is why credit card interest rates are a major factor in determining which card is best. Even though the difference of interest rates range only between 1-5%, it will make a substantial difference on the amount that you will end up paying. This is especially true for those who use credit cards for expensive purchases. So, it is a good idea to choose the lowest possible APR when choosing a credit card.
