A Low Interest Rate Card May Not Be The Best Deal
You may be surprised to learn the low interest card may not be the least expensive credit card to use. For years, we based our decisions to use one credit card over another on the interest rate charged by the lender.
Credit lending has become more complex in recent years. One of the most surprising things about credit accounts is that the interest rates charged seem to have little to do with interest in the wider consumer marketplace.
At a time when mortgage rates and interest on consumer loans such as auto loans and home improvement loans are at record lows, it's a shock to find the low interest card is much higher than interest charged on other consumer credit products.
Annual Fees Started to Disappear
When credit cards first began to gain popularity the profit for lenders came from the interest rates charges and from an annual fee. As competition heated up among big banks vying for consumer accounts, annual fees disappeared.
The practice of basing APR on the economic market was replaced with charging an interest rate that reflected the credit risk of the consumer applying for a new credit card.
A few years ago a credit card holder could phone his lender and ask for a few days extra time to pay his monthly bill. If it was a one time request, the lender would give the extension at no extra charge.
Today lenders seldom would approve a late payment. Big banks have discovered there is huge profit to be earned from fees assessed to credit card users who do not manage their accounts wisely.
The low interest card today may not be the cheapest account for consumers. Annual fees are once again being levied by lenders.
There is often the potential for waiving the fee once a certain amount of purchases have been charged to the account in a specified period of time. Annual fees may be waived for the first year after the account is opened.
If you choose to apply for a new credit card based on the low interest offer you find online, you may not be looking closely at other fees which might affect you.
A late fee of $35-39 may not seem important but should you pay your monthly bill even one hour past the deadline of 5 pm set by the lender, that fee would be added to your debt.
The low interest card may appeal to you but could be the most expensive card in your wallet if you ignore other fees and terms that might apply.
Today you can choose to opt out of allowing an over limit charge and this is highly recommended by financial advisers.
This may result in embarrassment if you attempt to make a purchase and the charge is declined as it would take you $5 over your spending limit. However, automatic approval of the $5 excess could cost you $35 in over limit fees.
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In the end, the low interest card may not be the best option or the cheapest account for your circumstances.