Credit Card Interest Rates are Real Killers
Have you ever thought why banks and other companies are offering free credit cards?Without any annual fee? Processing charges are nil - we are shopping and they are paying.
Isn't it strange? Where is their profit? How they are earning? Interest rates, Oh man! Credit card interest is the prime way through which the card issuer generates revenue.
As rates vary depending upon the entity issuing the card, it is mandatory to check out the rate applicable on the one, you are purchasing.
Credit Cards Methodology The credit card issuer is the bank or any other financial entity which gives consumer a card or account number that can be used with various payees to make payments and borrow money from the bank simultaneously.
When the card holders make payment for his/her personal needs using the credit card the card issuer pays on their behalf.
Banks charge the cardholders interest over the time the money remains borrowed.
As long as the amount remains unpaid the debt grows simultaneously and after certain time frame the card holder faces drastic condition.
Interest Rates Typically credit card interest rate varies from 7% to 36%.
Different banks use different risk evaluation methods to imply interest rates.
Usually they have a fixed method to calculate these rates but it depends upon the borrower's credit history.
For example people with bad credit are charged higher as compared to the standard card holders.
Banks also check national and international credit bureau reports that identify the borrowing history of the applicant and then decide about interest charges applicable.
Different Methods for Charging There are four different methods used by banks, credit unions, etc; to calculate their programs of charging for their credit cards: Depending on the Average Daily Balance Average daily balance methods are the simplest method of calculating credit card interest It produces interest rate that produces approximately, if not exactly, equal to the expected rate.
The sum is divided by the number of days covered in the cycle to give an average balance for that period.
It only adds to the principal amount once per month.
Adjusted Balance Just reverse to the previous balance method in adjusted balance method, at the end of the each billing cycle the balance is multiplied by a factor in order to give the total charge.
It can calculate the charges which can be lower or higher than the expected one.
APR is the most common method to calculate charges on credit cards.
It is compounded on a monthly basis.
In order to derive the monthly rate, obtain the twelfth root.
This will provide you will a rate which when compounded over a year will equal the APR.
Isn't it strange? Where is their profit? How they are earning? Interest rates, Oh man! Credit card interest is the prime way through which the card issuer generates revenue.
As rates vary depending upon the entity issuing the card, it is mandatory to check out the rate applicable on the one, you are purchasing.
Credit Cards Methodology The credit card issuer is the bank or any other financial entity which gives consumer a card or account number that can be used with various payees to make payments and borrow money from the bank simultaneously.
When the card holders make payment for his/her personal needs using the credit card the card issuer pays on their behalf.
Banks charge the cardholders interest over the time the money remains borrowed.
As long as the amount remains unpaid the debt grows simultaneously and after certain time frame the card holder faces drastic condition.
Interest Rates Typically credit card interest rate varies from 7% to 36%.
Different banks use different risk evaluation methods to imply interest rates.
Usually they have a fixed method to calculate these rates but it depends upon the borrower's credit history.
For example people with bad credit are charged higher as compared to the standard card holders.
Banks also check national and international credit bureau reports that identify the borrowing history of the applicant and then decide about interest charges applicable.
Different Methods for Charging There are four different methods used by banks, credit unions, etc; to calculate their programs of charging for their credit cards: Depending on the Average Daily Balance Average daily balance methods are the simplest method of calculating credit card interest It produces interest rate that produces approximately, if not exactly, equal to the expected rate.
The sum is divided by the number of days covered in the cycle to give an average balance for that period.
It only adds to the principal amount once per month.
Adjusted Balance Just reverse to the previous balance method in adjusted balance method, at the end of the each billing cycle the balance is multiplied by a factor in order to give the total charge.
It can calculate the charges which can be lower or higher than the expected one.
APR is the most common method to calculate charges on credit cards.
It is compounded on a monthly basis.
In order to derive the monthly rate, obtain the twelfth root.
This will provide you will a rate which when compounded over a year will equal the APR.