Secured Credit Card Interest Rates

It costs money to borrow money whether is a credit card or a car loan. How those fees are calculated and how companies hide them in the small print is important. Some lenders call them interest, some call them finance charges and some call them fees, however they are called they still come out of your pocket book.

Secured cards are more expensive due to the assumed greater risk of lending money to people with little, no or poor credit. Annual interest rates tend to be higher, usually annual percentage rates (APRs) of 18% and higher..

Variable vs. Fixed Interest Rates

Credit cards come with either variable or fixed rates. Variable rate cards are tied to the prime lending rate, supplemented with some additional percentage (which varies from lender to lender). Whenever the Federal Reserve raises interest rates, so will your bank. If the prime lending rate is low, variable rate cards can be very competitive with fixed rate cards, which offer guaranteed interest rates that don't fluctuate.

How card issuers calculate the finance charge

There are different methods that credit card companies use to calculate the finance charges. The finance charge is applied to the loan balance. Card issuers use different balance calculation methods such as; the average daily balance method, the previous balance method, and the adjusted balance method.

The most common method used by credit card companies to calculate finance charges is the Average Daily Balance method. This method gives you credit for your payment the same day the card issuer receives it. The ADB is calculated by taking the daily balance on each day of the period minus any payments received, divided by the number of days in the period. Because of the way the ADB is calculated, sending in your payment as early as possible will help you save money in interest charges.

With the method called the previous balance method, the issuer uses the balance outstanding at the end of, the period prior to the one covered by the billing statement. With the adjusted balance method, the balance is derived by subtracting the payments you¡¯ve made from the previous balance.
Some card companies give you a grace period on new charges before you owe interest. This is usually between 20 and 25 days. However, a grace period may only apply if you pay your balance in full each month. Check with your card company to find out how long your grace period is, and whether it applies only if your balance is paid in full.

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