It’s easy to get caught up in the excitement of a credit card offer and forget about interest. If you’re wondering which is better: fixed or variable interest rates, read further to know about how different types of credit card interest work and how they affect your balance.
The difference between fixed and variable credit card interest rates
If you are wondering are credit cards variable or fixed, well, there are several variations. The difference between fixed and variable interest rates is that a fixed rate stays the same throughout your loan’s life, while a variable rate can change over time. Some credit card companies offer both options, but neither is inherently better than the other: it all depends on what you want from your loan.
Plan to carry a balance on your card for an extended period. It may make sense to go with a low introductory APR (or “teaser rate”) when getting started, especially if it includes 0% introductory APRs on balance transfers or purchases. That way, if you have trouble paying off your bill by the due date each month, you won’t be hit with punitive penalty fees as long as nothing changes regarding your credit score during those first few months with this particular card company!
As per SoFi, “A credit card’s annual percentage rate, or APR, represents the cost a consumer pays to borrow money from credit card issuers, represented as a yearly cost.”
How your credit score may affect credit card interest rates?
Credit card companies can change your interest rate at any time, regardless of whether you have a fixed or variable interest rate. This is why it’s essential to make sure that you’re paying off your balance in full each month so that any changes in interest rates won’t affect your ability to repay the debt.
If you have good credit and keep a low balance on your credit card, the company will likely offer you a lower interest rate when they reevaluate how much risk they take on by lending money to you. But, on the other hand, if you have bad credit and higher balances on several different cards, chances are good that companies will charge higher interest rates for their products until they feel more comfortable with giving out new loans.
What should you do if you have a variable-rate credit card?
If you have a variable-rate credit card, there are some things you can do to help prevent it from being a problem for your financial health:
- Pay off your balance in full every month.
- Don’t carry a balance on your credit card.
- Don’t use your credit card to pay for everyday expenses.
- Don’t take out a new credit card if you have an existing one with a high-interest rate.
Correct knowledge can save you money and time
If you have a variable-rate mortgage or loan, it’s essential to know how much interest is accrued on your loan balance. However, if you’re not paying attention, this number can snowball out of control, resulting in a higher overall cost than if you had kept your fixed rate—even though the monthly payments were lower!
In the end, it’s important to understand all of your options when it comes to credit card interest rates. Hopefully, this article helped shed some light on what makes these two types of cards different and how each one can be useful for different situations.