There are two prominent methods, with the help of which, a credit card provider charges interest or levies the requisite charges. The common one is a variable Annual Percentage Rate (APR), where the rate is charged upon purchase, depending on the nature of the transaction.
The second method is that of fixed APR. In the past decade, many credit card providers shifted their focus towards providing cards with variable or floating rates.
Fixed rate card, as the name suggests, is a credit card that is provided at a fixed rate of interest, payable for every billing cycle, irrespective of the amount spent on the card. Of late, you may have observed that such cards are reappearing in the market. Let us look at some features of this type of card.
How Do these Cards Work?
Fixed rate cards have ridiculously simple billing cycles. They are governed by a fixed interest rate which means that you have to pay up the interest, irrespective of the amount of purchases you made.
After the card is approved, you will have an interest-free period, as per the credit card company's policy. Also, there are some federal norms that make such a period compulsory, so that the user may get a gist of credit card usage.
When this time elapses, your billing cycle will start. The billing cycles are principally month cycles, or in some cases, quarterly. The company bears all expenses made through card and a bill is sent to you at the end of the billing cycle. A particular rate of interest is charged upon the total sum. This rate of interest is common for all billing cycles.
Note that there is a specified deadline for the payment of the bill, after which you will be charged a late fee and your credit rating will drop. According to latest updates, the average credit card rate across all types of cards is 15.96 percent.
Also, the credit limit is not sky high, but stretches up to a very good limit. Consumers with higher credit scores get lower rates, while those with lower scores are charged higher interest rates.
There are quite a few advantages of using such credit cards. For starters, the exceptionally low rate of interest saves a lot of money in the long run. Apart from this, there are fewer extra fees that are levied. Consider late fees, as they can be harmful for your pocket as well as your credit report.
This card is basically suited for purposes such as grocery and medical bills, which are churned out every month. The third advantage is that if you are successful in paying the bill on time every month, then your credit ratings will rise drastically. On regular payment, you will pay lesser interest and service fees.
If you use these cards wisely, it is a simple and easy way to have a picture perfect credit report. In fact, they are considered excellent student and bankruptcy credit cards.