202. Do I want a fixed-rate or floating-rate (variable-rate) credit card?
Description
This article is from the Credit cards and Consumer Credit FAQ, by adams@spss.com (Steve Adams) with numerous contributions by others.
202. Do I want a fixed-rate or floating-rate (variable-rate) credit card?
The interest rate is the rate charged on purchases and cash advances
(generally two different rates). It can be fixed or floating.
Fixed rates are not truly fixed, because the banks will change them
every year or so. Floating rates are typically a bit lower than
fixed rates, but fluctuate every month according to the latest
T-bill sale, or the phase of the moon, or whatever. If you buy
something you're expecting to pay off over many months, this makes
it hard to guess how much finance charge you'll be paying.
Floating rate and variable rate mean the same thing.
Years ago, credit-card issuers would quote an interest rate that was
not directly comparable with other lenders' rates because the method
of computation was not standard. Now the law requires lenders to
quote an Annual Percentage Rate (APR) so that you can compare cards.
Interest rates are all over the map. In a recent {Wall Street
Journal} list, a secured card was as low as 8.0% and an unsecured
card as low as 10.5%; you may also see interest rates as high as
21.9%.
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