Low Fixed Rate Credit Cards vs Variable Rate Credit Cards

There has been much debate about what type of credit card is better, low fixed rate credit cards or variable rate credit cards. Each of them make a strong case but most of the time it really depends on the borrower. People have different financial goals and income levels. With so many things to take into consideration, the average consumer must do their research and make the right decision for them.

Variable rates by their definition is a unsecured loan that’s interest rate can change due to a couple factors. The first one is the lending institution. With credit cards there are not a lot of strict guidelines in place to keep the credit card companies from changing things on their own. Because a charge card is an unsecured line of credit they are considered very risky. This is why companies can change interest rates more often without any prior notification. Variable rates can change every month or quarter and are used by approximately 60% of card holders.  Variable rate credit cards move in correlation with the Federal Reserve. When you hear about the Fed lowering the “prime rate” it means that all variable rate loans such as credit cards or lines of credit will have their rates reduced. You can expect to pay between 12%-25% with these particular cards. So when the prime rate is lowered this is great news for you.

Low rate fixed credit cards are more desired than cards with variable apr’s because the rates do not change each month or quarter.  Fixed rate credit cards carry stable interest rates for a specific time period. You do not hear that much about fixed rate cards because the banks prefer to lend variable cards with the way interest rates change on the market. These cards are available but a little bit harder to get approved on. If you are trying to build your credit history or have bad credit it may be some time before you get approved on one. Banks want to see that you are credit worthy before giving you preferred rates. Rates on fixed credit cards are in the 7%-12% range. Just because your rate is fixed does not mean it truly is. All user agreements have clauses in them. To maintain your fixed rate you need to make all of your payments on time. It does not matter if it is one day or one hour late. If you do this, you give the bank the right to unlock your fixed rate to whatever they want and charge you a late fee. Another clause is to stay under a percentage of your limit, typically 50%. As an example, lets say you have a $1000 limit and carry a balance, you need to keep it under $500 or they can change the terms of your card. Each company has different rules but if you make your payments on time you should nothing to worry about.

The differences in the cards come down to if you want to play the market. With cards being tied into different factors it depends on how much you are willing to gamble with your finances. Whatever way you decide to go make it clear to your company that you deserve the best interest rates.