We can always encounter best credit card rates being offered in the Internet. Credit card companies and banks offer their own as well.
If you owned credit cards for long now, you must have understood very well the effect of high and low interest rates and their relationship with your monthly payments.
For the sake of first-time cardholders and others that are never particular of how credit card issuers charge them, let us look at these rates for the purposes of understanding the rationale in seeking the best credit card rates.
Understanding Credit Card Monthly Payments
Some major credit cards including American Express would require their cardholders to pay their monthly charges in full. The consumers are encouraged to do so by providing them with the benefit of no finance charge.
Other credit card issuers including MasterCard, Visa and Discovery offer cards that are categorized under revolving credit. The cardholders under this category may choose to pay only the minimum payment. They can carry a balance every month subject to interest charges.
The following are the three ways from which banks and credit card companies based their monthly payment calculations. Let us see the relationship of the computations with the best credit card rates.
The Adjusted Balance – Accordingly, this way of computation favors cardholders. This method takes the previous statement balance, adds new charges, subtracts payments made and multiplies the result with the monthly interest rate.
The Average Daily Balance – This is the most commonly used method and is considered fair to both the cardholder and issuer. The computation involves tracking of the daily balance, adding charges and subtracting whatever payments made. The average of the daily totals will be computed at the end of that period, and multiply the result with the monthly interest rate.
The Previous Balance – Accordingly, this method favors the issuer. The computation of the finance charge is done by multiplying the balance of the previous statement with the monthly interest rate.
The monthly payment is dependent of the account balance, the applied interest rate and the method of calculation used.
Understanding the Effect of Interest Rates on Payments
In order to choose the best credit card rates, it is crucial to know the effect of interest on the computation of credit card payments.
High-Rated Credit Card – Assuming you charged $3000 at 22.99%. Assuming further that no charging was made after and cardholder decides to pay only at minimum per month. The minimum payment will commence at $150 going down towards the end of the payment period at $25. The credit card balance will be paid in 77 payments, and the total interest paid at that time would be $1655.
Low-Rated Credit Card – Using the same amount of charge above at 8.99%. The minimum payment will commence at $150 going down towards the end of the paying period at $24. The credit card balance will be paid in 59 payments, and the total interest paid at that time would be $475.
In conclusion, with the lower interest rate, the period of payment of the debt would be lesser by two years, and saves $1180 on interest fees.
When making a choice for the best credit card rates. Make every effort to settle at the lowest rate possible in order to maximize savings from interest fees and paying credit card balance in shorter period.
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