What is the Average Interest Rate of a Gas Card?
What’s the big deal about interest? The interest rate of a card is one of the reasons that people choose to apply for or sign up for a card. A high interest rate can drive a small balance up to the point where you can no longer pay. A low interest or zero interest card is easy to pay off as well as easy to use. It means that you’re paying lower fees for using your credit card. The rate that you get can make the difference between signing up, saving and even with your possible cash backs and rewards.
What is interest in the first place? It’s a fee that you pay to use the services that the credit card offers. It’s basically something that guarantees that the lender (the credit card) makes money even with the loan given to the borrower (you) is money that they could use for other things. Like building more banks. It’s basically what you pay for using credit. Since credit cards are loans, then the interest is sort of like rent that you pay for the virtual money the credit card gives you. I use virtual because there’s no actual cash involved until you pay for it.
Different gas cards have different interest rates. This can depend on a lot of factors such as:
1.      Risk – this means the risk they take with you. If you have a history of bad credit, bankruptcy, non-payment or a lot of other loans like mortgages floating around, you’re a higher risk. This means they can charge you higher interest rates because you have a history of not paying and this means that you might do it again.
2.      APR – or annual percentage rate. This is the fee paid for borrowing. This fee can vary between 6% to as high as 21% depending on the rate or terms you agree to.
3.      Prime Rate – The prime rate is the reference rate used by credit card companies. It’s published in the Wall Street Journal. This is basically the most basic rate you can use for a loan.
On average, credit card companies offer between 6% to 12% interest in the APR. This doesn’t include promotional or one time offers of zero or low APR. Remember, the average annual rate is divided into twelve as simple interest. This is the basic interest that you pay as the cardholder. Compound interest is this plus all other finance charges the company may charge you.
For example, your balance (known as the principal) is 100 dollars. You’re paying 1.5% as a monthly interest on your card. This means that you’ll be paying an additional dollar fifty for every month that your balance remains on the card. Not so bad? So why are so many Americans in credit card debt? This is because they don’t consider the compound interest. This means that you can pay as much as $3 for every month if your account cycles in the middle of the month. This still doesn’t include the finance charges that you may have to pay, such as $10 to $30 late fees, annual fees, etc. Hence the importance of having either a) a low balance or b) none at all. There might be clauses in your card agreement that say that if you’re late more than once with a payment or have a missed payment that allows your interest to skyrocket to as high as 19%. Is that legal? Unfortunately, yes. Can you avoid it? Fortunately, the answer is yes.
Understanding your interest rate and the factors that influence and cause changes in it. This will help you not only manage your gas card but other credit cards as well. America is credit-driven and becoming a smart consumer is step one towards freeing yourself from debt and using credit wisely.
Sources: http://www.investopedia.com/articles/01/061301.asp
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