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
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.