Credit cards are a fantastic way to build your credit and give you the flexibility to make purchases at any time. But there’s more to them than just making purchases. Before applying for one, you need to understand the different types of interest rates and how they can affect your finances.
As Lantern by SoFi advisors you must “Learn how credit card interest works and how to calculate credit card interest, so you can better take advantage of the benefits your card has to offer without incurring debt,”
Regular Interest Rate
The regular interest rate is the interest rate you pay on the balance of your credit card. This is usually expressed as a percentage and charged to you as a monthly service fee, which gets added to your outstanding balance. It’s important to note that this fee is charged on the entire outstanding balance rather than just the new purchases made during that month. The higher your balance, the more money you’ll end up paying in fees and interest charges if it remains unpaid until next month’s statement date rolls around again!
Cash Advance Interest Rate
The cash advance interest rate is the interest rate charged on cash advances, which are made with a credit card. Cash advances are not subject to grace periods and minimum payment rules like regular purchases, however they do have an APR of their own. If you’ve ever gotten in over your head with credit card debt and had to pay back a large sum of money in short order, it’s likely that you were charged this type of interest rate and were unable to get out from under it quickly enough.
Balance Transfer Interest Rate
If you’re transferring a balance, it’s important to understand what your interest rate will be. The interest rate on your new card will be higher than the regular rate, but it’s often lower than what you’re already paying. That difference gives you time to pay off your debt without accruing tons of additional fees and interest payments.
So if you have a balance transfer offer with a 0% APR for 15 months and an 18% APR after that, it would make sense for them to give you an initial period where there is no interest on your transferred credit card debts so that you can pay them off at a reasonable pace without getting bogged down by fees and interest payments.
Introductory Interest Rates
Introductory interest rates are a great way to pay off debt faster. These introductory rates are often for a limited time period, such as six months or one year. If you’re able to pay off your balance during this time, you’ll avoid paying any interest at all—which is why they’re often referred to as “0%” credit cards.
If you can’t pay off your full balance in this time frame, another option is a promotional rate that lasts up until your first payment date (usually 30 days after opening). This will keep the same low rate on whatever amount of debt remains after the introductory period expires.
Credit card interest rates are an important part of your credit card. They determine how much you will pay in interest and how long it will take to pay off your debt if you don’t pay off the balance each month. The most common types of credit card interest rates include variable, fixed and promotional balances.