The Ultimate Guide to Credit Cards

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Balance Transfer APR

Likewise, card companies will also designate an APR that will be levied on balance transfer transactions. It is quite common for banks to charge the same for both balance transfers and purchases, but always check the corresponding APR just to be sure. Also keep in mind that companies often charge an additional fee or surcharge whenever you complete a balance transfer, which can potentially add a 2 to 3 percent fee to your cost. It’s cheaper to pay the small balance transfer fee than it is to pay for the balance transfer’s APR, so look for a card with an intro rate of 0% to save the most money.

Cash Advance APR

The rate charged for a cash advance is frequently several percentage points higher than the purchase and balance transfer APR, whether you do it with a convenience check, at an ATM or by some other means. Before you take out a cash advance, be sure you know what the APR is so you can plan accordingly. We suggest you only take out a cash advance when absolutely necessary. The interest charged is often not worth it.

Discounted APRs or "Teaser Rates"

To lure in new customers, credit card companies will oftentimes provide a very attractive, low interest rate of 0 percent – typically on purchases or balance transfers (or both). These typically come with an expiration date and after that intro rate expires, the APR will revert to the ongoing, or “standard,” APR for that particular card. It is not unusual to see a “teaser” rate skyrocket to a rate of 15 to 29 percent. Beware of those changes so you can take full advantage of the low rate, but pay off your balance before the on-going APR kicks in.

Penalty APR

Card companies also impose significantly higher interest rates if you fail to pay the minimum amount due on your credit card each month. Triggering that kind of penalty can be dramatically expensive. For example, if you miss just one payment your card company will likely impose a huge penalty by charging you the penalty APR. These penalty rates can be staggering – running as high as 29 percent or more.

The good news is that thanks to the legislation known as the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act) of 2009, card companies have to restore your original rate if you make six consecutive on-time payments.

Understanding how your payments are calculated is important so that you know what to look for when choosing your new card; however, another crucial factor to understand when comparing credit cards are the different fees associated with each card.

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Page 21: Annual Percentage Rate (APR)