Credit Card Interest Rate School

It's no secret that credit card APRs are the way credit card issuers make money by loaning cash to Americans through these pieces of plastic. The higher the interest rte on the credit card account, the more cash the bank makes. Which also means the higher the interest rate on a credit card, the higher the cost to people who use it. However, when people ask what your APR is on your charge card, they are asking a question that doesn't make any sense. This is because most people who carry balances on charge cards have balances spread out across multiple APRs on each card. Here is a list of each different annual percentage rate Americans might see on their charge card account and what balances get charged that rate:

The Purchase Rate: The purchase rate also known as the standard interest rate on a credit card account is generally the only annual percentage rate that consumers know they have. However, this interest rate does not apply to all balances, it only applies to the balances accumulated through general purchases such as groceries or gas. This annual percentage rate generally does not apply to balances accumulated to cash advances, charge card account checks or balance transfers.

Introductory Interest Rate: The introductory annual percentage rate also known as the promotional interest rate is a low rate of interest that will apply to all balances on a charge card account for a short period of time. Introductory APRs are used by banks to lure people into choosing their charge card product over a competing product. These APRs generally range between 0% and 6% and generally last between 6 and 12 months. Once the introductory period expires, the balances will be charged the interest rate for their specific categories.

Balance Transfer Interest Rate: The balance transfer interest rate on a charge card is generally lower than or the same as the standard APR. Balance transfer interest rates are used to attract people to a credit card product provided by competing banks. A balance transfer is when some or all debt on one credit card is paid off by some or all of the available credit on another charge card. Balances accumulated in this way are generally charged the balance transfer annual percentage rate.

Cash Advance Interest Rate: The cash advance APR is generally the second highest annual percentage rate on any credit card account. This annual percentage rate is the rate of interest that will be charged for balances accumulated through cash transactions. These cash transactions can be cash back at a local grocery store, any ATM transaction and even wiring cash or credit card account checks! If people have any option at all, it is best not to use a charge card for cash transactions because of the high rate of interest that comes along with them.

Default Interest Rate: The default interest rate is one that consumers hope to never have to pay. This is an interest rate that will apply to all balances if people default on the account. It is a form of banks punishing consumers for things like late payments and spending more than the allowed credit limit. The default interest rate on most credit cards is 29.99% so it is best to try and stay away from it!

This article was written by Joshua Rodriguez and is brought to you by:

JEMCreditCards.com: The Discover Cards,American Express Charge Cards

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