Important Terms In Credit Cards Agreement |
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If you are in the market for a credit card, you can save a lot of money by shopping around for the right one. Terms and interest rates of credit cards vary -- and some of those variations can make a huge difference to your wallet. Before you sign up for a new card, make sure you understand the important terms of the credit cards agreement. Then shop for the card with the best interest rate and terms. Even if you didn't shop around for your current card, it would be wise to do some comparison-shopping now. You may find a better deal elsewhere. Important Terms in a Credit Card Agreement: The federal Truth in Lending Act requires credit card companies to disclose the terms of the credit card in the cardholder agreement. The interest rate is a good start for comparison-shopping. But don't ignore other terms; they can cost you hundreds of dollars, depending on how you use your card. Here are the basic elements in a credit card agreement and what you should look for: Finance Charges (also called interest). Credit card companies disclose the interest rate in several ways, but should look at the annual percentage rate (APR). This is the amount of interest, transaction fees and other charges that you will pay per year, expressed as a percentage. Although the APR is an estimate (it will vary a bit depending on how many transaction fees you incur and how large a balance you carry), the federal law requires that it be calculated in a standard way. It is the best indicator of the actual interest you will pay. If you never carry a balance on your credit cards, then the APR is not important. You won't ever pay interest. But if you don't pay your bill in full each month, the APR is crucial. Obviously, the lower the APR, the better. But be sure to read the fine print. Some credit cards have a low introductory rate (also called a teaser rate). After a few months, the interest rate will skyrocket. Also, sometimes the advertised rate only applies to certain people, such as those earning a high income. The card company charges a much higher rate to those who don't qualify -- which could mean an unpleasant surprise when your first bill arrives. Grace Period. This is the interest-free period of time between the purchase date and the bill due date. It is usually available only to those who do not carry a balance on their credit cards. If you pay your bill in full each month, make sure you have a grace period. Otherwise, you'll pay interest from the date of your purchase. Annual Fees. Some credit card companies charge you a flat fee (in addition to interest and other charges) for using their card. Some do not. If you pay off your balance each month, you want a card without an annual fee. If you carry a balance, a card with an annual fee but a low interest rate may be better than a card with no annual fee but a high interest rate. Transaction Fees. Most credit card companies also charge fees for cash advances and assess penalties if you pay the bill late or go over your credit limit. Check the fine print to see how high these charges can go. Higher Interest Rates for Cash Advances and Late Payments: Virtually all credit cards charge higher interest rates for cash advances. And with some cards, if you make late payments, the company imposes a new, much higher interest rate. If you think you might pay late once in a while (be realistic), check out these interest rates. Some exceed 20%. Rebates, Free Miles and Other Perks. Many credit cards now allow you to earn cash back, free airline miles, discounts on goods and services, funds for charity or other bonuses by using the card. Don't sign up for a card based on these perks alone; be sure to consider the other card terms as well. If you will pay high interest and high annual fees, you might be better off without the perks. |
