Today, it can be complicated if you try to compare interst rates for different lenders. Since introduction of new credit lending regulations in 2010, banks seldom list the APR for a credit card offer.
Instead, the current trend is to list two or three interest rates for one offer. The rate you are granted for your new credit card is based on your credit score.
Designate the Creditworthiness
Some lenders will designate the creditworthiness required to be approved for certain credit card offers. You may find the terms excellent, average or fair credit used to describe the credit requirements for that particular offer.
Though meant to clarify your choices, these designations can be further confusing if you aren’t sure what your credit score is or where it falls on the lender’s range of excellent to poor scores.
The best practice to compare interest rates is to totally discount the lowest APR listed. In fact, most new accounts are approved at the mid-level or higher APR listed by the lender for those accounts.
To find the best offer to suit your needs, you need to go beyond a simple comparison of interest rates. Some points to consider in addition to APR might be:
- Penalty Rates
- Cash Advance
- Introductory Offers
– What leads to a penalty APR and how long will that penalty be applied to your account?
– If you might need to use the cash advance option on your credit card, is the APR reasonable? Is there a fee for each transaction in addition to a higher interest rate?
– The 0% introductory offers are once again being promote by credit lending institutions. If you need to transfer a high interest balance to a new card, this option will appeal to you.
How long does the introductory rate apply? Can it be cancelled by the lender before it expires? What are the fees to transfer a balance to the new credit card account?
– The fees have been regulated with the new credit card laws. The result is that almost all banks now charge maximum fees allowed for late payment or when you charge over the spending limit on your card.
You can advise your credit issuer to disallow any charges that would exceed your available spending limit to avoid any over limit fees.
Things to Consider When Comparing Interest Rates
When you are choosing a new credit card offer, the first item to consider is the range of interest rates that may be applied to that card.
Second, you want to consider any fees that might be added to your account. These may be foreign transaction fees, balance transfer fees, over limit fees, cash advance fees and late payment fees.
If you find a card with an excellent 0% introductory rate, consider the amount of time the 0% rate will be in effect. Read terms carefully to see if there are any penalties that might cancel the introductory rate.
Last, if choosing 0% introductory rate credit card, compare the interest that will be applied to the credit account after the introductory rate expires.
For many current offers, the rate following an introductory special rate may be higher than for a credit card without an introductory bonus.
Unless you plan to transfer high interest balances to the new card, you may choose a lower interest rate over an introductory bonus you might not use.
To compare interest rates, you need to look beyond the stated APR for the card and consider bonuses, transfer fees and any other costs that might add to the cost of using the credit card.
If you time over, I really recommend you to read our guide on how to consolidate your cards (even if you don’t want to consolidate your cards).