14:52 31 March 2014
There are a number of things a consumer should consider before deciding which credit card he will acquire. Perhaps the major consideration should be the comparison of the Annual Percentage Rate or APR. Ironically, this important aspect remains to be the least understood by the most consumers. They are aware of all the fringe benefits of the credit card but do not exactly know how compound interest works to their disadvantage when their balances are not paid in full.
Credit rates are designed by different credit cards depending on their purpose. Usually, they offer very low APR for balance transfers. However, cash advances are charged much higher APR compared to regular credit card purchases as this is considered a higher risk business deal.
One good thing about APRs is they can also be flexible. Credit card companies tend to allow the client to work out a lower rate if they can no longer pay his debts under the present rate. A debt management plan can be worked out to give the client a definite time within which he should settle the debt. This may, however, damage the client’s credit rating.
Knowing the rate can be a helpful point of comparison when assessing the benefits of a credit card. However, you should also see if there are other fees they charge to offset a lower APR such as membership fees, late payment penalties or over credit limit penalties. You can also look at the rewards points or cash back benefits to offset the high overall cost of the card you have chosen to acquire.
Annual Percentage Rate is not the only consideration you have to look at when comparing credit cards but it is a useful feature that can give you an initial picture of what it will cost you to borrow money and which card can give you the lowest rate or the best deal in this aspect.