Low Rate Card Deserves Consideration But Read The Fine Print

2007-03-08 10:33:40

( Financial )



If you are preparing to apply for a credit card, do read the fine print on the credit card applications and do shop around. Most credit card applications usually invite you to sign up for a low rate card.

You may be inclined to choose a credit card because it is advertised as a low rate card. Bear in mind, though, that the advertised rate cards offer may not be everything you need to know. Low interest rate cards may actually charge you different rates for purchases, cash advances and balance transfers. The rate can be very different for each transaction type, and the differences may affect a card’s appeal to you.

If you have a steady income but also substantial debt, you may want to transfer balances from high-interest to low-interest rate cards. In this case, you need a low rate card on balance transfers but you can live with a high rate for cash advances (since you don’t need them).

However, you should find out how payments will be allocated to the low-rate balance versus the high-rate balance. You naturally expect your payments to first apply to the balance with higher interest. This is not so, however.

Usually, the card issuer will apply your payments to the low-rate balance until the amount is fully paid. In the meantime, the interest on any other purchases, cash advances or transfers that you make continues to grow at the high rate. If the low rate card practices this, make sure you don’t use it for casual purchases.

You should also study the rules regarding actions that affect the interest rate. There are card issuers that raise your rate, or impose stiff penalty rates, if you make late payments. If you do take advantage of the low rate card offer, you must religiously remit your payments promptly.


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