| Is it simple to understand credit card interest and fees? | |
| Date Added: January 25, 2012 03:21:06 AM | |
| Author: pds20 | |
| Category: Clickbank Products | |
| Is it simple to understand credit card interest and fees? For several decades it was almost impossible to shop around for an inexpensive credit card, because few credit card issuers were willing to tell consumers up front how much interest they charged. Congress put a end to that practice in 1988 with the passage of the Fair Credit and Charge Card Disclosure Act of 1988. Card issuers are now required by law to provide applicants with more information about costs of credit cards up front. Under this law, the costs of credit cards must be displayed in an easy-to-read box format on applications. Under this law credit card issuers must reveal annual percentage rate and other finance charges and fees, any grace periods, balance calculation method, and annual fees. Annual percentage rate, other finance charges and fees are generally classified into two categories: annual percentage rates (APR) and monthly periodic rates. APR is the annual rate of interest the issuer claims a consumer will pay over the course of a year on revolving balances. APR could range from as high as 30 percent to as low as 5.9 percent. However, the stated rate is rarely the actual rate of interest, because most issuers compound interest (charge interest on interest). That means that if consumers carry a balance from month to month they will be paying a much higher APR than the issuer's stated rate—in some cases as much as 2 to 3 percent higher. The most costly of these charges to the consumer is the cash advance fee. Card issuers already make a considerable amount of money off cash advances because they charge interest from the first day cash is advanced, regardless of whether the balance is paid in full at the end of the month. Also, they make even more by charging higher interest rates (from 1.5 to 5 percent more) on cash advances than on purchases. On top of that, most issuers charge a cash advance fee of up to 2.5 percent of the amount of cash advanced, with a minimum charge of from $2 to $5 per transaction. Grace periods As defined by the Federal Reserve Board, a grace period is “the date by which or the period within which any credit extended for purchases may be repaid without incurring a finance charge.” A grace period is offered at the discretion of the credit card issuer, so not all issuers offer a grace period. Many consumers are confused about the grace period. They often assume that new purchases do not start accruing finance charges until after the grace period has expired. In fact, if any part of a balance, even one penny, is carried over from a previous month, all new purchases made during the current month will start accruing interest immediately. Also, consumers do not generally get the whole grace period free of interest unless they meet two conditions: the entire “balance due” has been paid by the due date, and all “new purchases” have been paid in full by their due date. If consumers carry a balance from month to month, grace periods do not apply, even if the issuer of the card offers one. Annual fees, sometimes called membership fees, average about $20 annually, although some Platinum cards charge upward to $300 annually. Some cards, however, carry no annual fees. Nonetheless, issuers always get their money. Unless consumers pay the entire balance each month, they pay interest to the issuers. Also, merchants pay issuers of the credit cards from 1.5 to 10 percent of the cost of all items charged on the card, just for the privilege of accepting the card. Brief conclusion: It may seem that credit card issuers have multiple ways of capturing consumers' money, there are ways to lower credit card costs: switch to a low APR credit card with no annual fee, make sure the entire balance is paid monthly before the due date and do not allow a balance to be carried over into the next month, and resist taking cash advances against the credit card. youranchortext |
|
|
|
|