What to Know About Credit Card Interest Rates
Credit card interest rates are important to both the lender and the borrower. Why is it so? The interest rate on the credit card will greatly affect the earning capacity of the lender and the paying ability of the borrower.
Read on and learn why and how interest rates on credit cards affect both the lender and the borrower. If you were the borrower, it would be extra helpful to you to know how you can make the interest rates work on your favor.
What is Interest on a Credit Card?
Interest, put simply is the fee that an individual pay for the opportunity of borrowing money from any institution or person. Borrowing will enable the person to purchase today without earning the income yet. Therefore, since the lender gave up his own opportunity to use the money, the borrower is paying an interest for it.
With credit cards, the interest rate is known as the annual percentage rate or APR. It would be beneficial for you if you can get the lowest interest rates available on the market. With lower interest rates or APR, the cost of borrowing money will be lower and it would be easier for you to pay back.
How Do Credit Card Interest Rates Work?
With credit cards, the annual interest rates vary. Some banks charge higher interests while others charge lower. The credit card interest rates or APRs are calculated by the day.
To illustrate, supposing your APR is 20%. To compute how much the bank is charging you per day for a balance of $500, all you need to do is to divide the interest rate of 20% into 365 days (the number of days in one year) and then multiply the result with your balance of $500.
The computation would look like this:
20%/365 = 0.0005479
0.0005479 x 500.00 = 0.27
Therefore, in this example; your daily interest is $0.27 or equivalent of $99.00 per year for a $500.00 balance.
Can You Request to Lower Credit Card Interest Rates?
Yes, you can request to lower credit card interest rates. However, if the bank or credit card company will grant your request is a different story? The banks impose interest rates based on numerous factors and one of them is related to the international agreements among banks concerning credit cards. Therefore, even if the bank would want to lower their credit card interest rates, they may not do so because it would be considered an unethical business practice by other banks or competitors.
What most credit card companies do is to offer a lower credit interest rate for customers that maintain a certain standard such as having a high credit score or paying monthly balances ahead of deadlines. Actually, if you pay on time and never miss a payment, you will likely have a high credit score. Having a high credit score and getting lower credit card interest rates will be both beneficial for you.