With the plethora of credit cards around, it can be tough task to find out the best card for you. But one variety of card that is highly popular is the fixed rate credit card. Fixed rate credit cards offer you a peace of mind as your APR will not change for a specific time period, but has all the features of a normal card. This article offers more details about fixed rate credit cards.
What do you mean by ‘fixed’?
A fixed rate credit card is a card that with an APR that will remain fixed for a specific period of time. Most fixed rate cards have a fixed APR for about 3-5 years. This means that your interest payments will not change in this period.
Why choose a fixed rate card?
If you have a fixed income and cannot afford an increase in your repayments, then obtaining a fixed rate card makes sense. Even prior to using any credit you should calculate the charges for the next months and years. This will allow you to budget more effectively and determine your exact payment every month. If you want the assurance that your repayments will remain constant, then a fixed rate card is a good bet.
What are the costs included?
Although fixed rate cards are not necessarily expensive, they do normally charge higher interest rates as compared to variable rate cards. The lender is taking a risk by giving a fixed rate card, as the base interest rate can increase and they can suffer loss. Hence the interest rates charged by lenders on fixed rate cards are 2-3% higher than normal cards.
Some variable constants
Though your APR will remain constant for sometime, it is essential to remember the other charges included in credit card billing. The lender may be unable to vary the APR, but they can always vary the late payment fees or balance transfer charges. If interest rates increase, you may find your charges increasing, thus making the card expensive.
Variable rate cards
The other option to fixed rate credit cards is variable rate cards. These cards have a variable APR that changes in accordance with the base interest rate changes. Though a card issuer is unlikely to lower your interest in case they reduce, they have to remain competitive and so you may benefit. But it likely that the rates can increase each year.
Is a fixed card the solution?
Fixed cards offer the advantage of maintaining your repayments at a constant rate over the period. But they charge higher interest and unless you are interested in keeping the interest constant due to budgetary problems, it is better to choose a lower APR card and then change if there is a sharp increase in the interest rate.