Credit cards As A Mean Of Borrowing

The most common fallacy : Cheap credit cards is an easy way to borrow money.

At the first glance, inexpensive credit cards seem to be an easy way of borrowing. But for some people they can be a far too easy way to get money and, in despite of common sence, a very costly one. It is quite a usual practice that credit card issuers apply interest rates three times as high as the bank?s current annual interest rates.

How do banks calculate interests on credit card accounts?

This point turns to be fairly confusing, particularly when you are trying to choose between competing offers from credit card issuers. One and the same credit card may deal with as many as three or four different interest rate quotations. First of all, your credit card account will be charged monthly on the outstanding balance. On average, the interest you have to pay every month fall between 0.75 and 1.5 per cent. It sums up to the annual interest rate spread of 9 to 18 per cent. Though you can find credit cards with both cheaper and more expensive interest charges most of them will vary within this narrow range.
Sometimes the issuers of cheap credit cards apply very low or zero introductory interest rates. Low rates are used as an enticement to attract new customers and are usually valid only for a short term. Not longer than for one year. Be very careful with such appealing proposals for the next reasons. As a rule the attractive introductory rates don?t cover the transfer of outstanding balances from other credit cards until you have paid them out. And once the introductory period is over the interest rate may grow dramatically.

What other hidden gimmicks may credit cards conceal?

Credit card issuers may charge various annual or monthly fees. Depending on the banking institution, these fees can range from nothing to more than $150 a year. Some credit cards issuers may offer you lower interest rates for higher fund turnover. In other words, the more money you spend on the card, whether you pay it off or not, the lower interest rate you will be charged. All these altering charges can be quite confusing. It brings certain difficulties determining the resulting annual percentage rate (APR) quotation, the legally required percentage rate specification which is designed to show you the factual cost of borrowing. So not always you know exactly how much you will pay for the conveniences of credit card utilization.