There are two prominent systems with the help of which a credit card provider charges interest rate, or levies the requisite charges. The common one is a multiple APR or rather a variable APR, where the rate is charged upon purchase depending on the nature of the transaction. The second system is that of the fixed rate of interest. In the past decade, many credit card providers shifted their focus upon providing credit cards with variable or floating rates.
Fixed rate credit cards, as the name itself suggests, is a credit card that is provided at a fixed rate of interest that is payable for every billing cycle, irrespective of the amount is spent through the card. Of late, you may have observed that low fixed rate credit card offers are reappearing in the market. There are very few credit card companies that offer this kind of card, since it went 'out of fashion'. Irrespective of the 'old' and 'outdated' service the low fixed rate interest credit cards, are of significant importance, and also play a largely instrumental role in helping the credit card users in many ways. Here's an explanation...
How do Low Interest Rate Credit Cards Work?
Leave aside all that you know about credit card workings and credit card offers, out of all the credit card mechanisms, fixed rate cards have ridiculously simple billing cycles, also known as credit card processing. The credit card has a fixed interest rate which means that you have to pay up the interest, irrespective of the amount of purchases you made. After the card is approved you will have an interest free period, as per the credit card company's policy. It must be noted that there are also some governmental norms that make such a period compulsory, so that the user may get a gist of the working of the card.
When this time elapses, your billing cycles will start. The billing cycles are principally month cycles, or in some cases quarterly ones. The credit card company bears all expenses made through the credit card and a bill is sent to you at the end of the billing cycle. A particular rate of interest is charged upon the total sum. This rate of interest is common for all billing cycles. Note that there is specified deadline for the payment of your bill, after which you will be charged with particular fine and your credit rating will drop. Conventionally, the interest that is charged upon the billing cycle is low, such as 8% to 10% (hypothetical). The rate of interest on low fixed rate of interest rate credit cards is extra low 4% to 5% (again hypothetical) and the credit limit is also not sky-high, but stretches up to a very good limit.
Why Low Fixed Rate Credit Cards?
The question is genuine, due to the fact that there is genuine drawback that this credit card has the same rate of interest imposed on every bill. Well, there are quite a few advantages of using this credit card. For starters, let us say the exceptionally low rate of interest. This saves a lot of money in the long run. Apart from such a low interest there are fewer extra fees that are levied upon this credit card. Consider late fees, as they can be harmful, for your pocket as well as for your credit report. This card is basically suited for some purposes such as grocery and medical bills which are churned out every month. Apart from that, the second advantage is that if you are successful in paying the bill every month then your credit ratings and credit score will rise drastically. On the whole for such regular payments, if you consider such a credit card, you will find that you will pay quite less interest and service fees.
If you calculate properly, and use the fixed rate cards wisely, then you will find that it is a simple and easy way to have a picture perfect credit report, by paying a low and fixed rate of interest. In fact, these kinds of cards are excellent student credit cards and bankruptcy credit cards.
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