Do All Credit Cards Have a Variable APR Rate?

By Contributing Writer

  • Overview

    Credit card companies advertise "fixed rate" cards as an alternative to variable rate cards. But when you're dealing with credit cards, the words "fixed" and "variable" have little practical meaning. What your credit card company describes as a fixed rate can in fact be changed quite easily. You may not even realize it has happened until you get your statement.
  • Identification

    A variable APR changes according to the federal prime rate. This can be an advantageous when the prime rate is falling, since your credit card APR will go down along with the prime rate. However, to protect their own interests, credit card companies usually establish a minimum "floor rate," below which your APR cannot go. When the prime rate is rising, a variable APR affords you no advantage.
  • Considerations

    Other factors will affect your variable APR. If your credit history is not good, if you have too much available credit or if your total amount of debt is too high for your income level, your credit card company will consider you a high-risk borrower. You'll be charged a higher APR, perhaps as high as the legal limit, which can be as much as 30 percent APR.

  • Time Frame

    Credit cards will often come with a very low fixed introductory APR. Zero percent APR is commonly offered for balance transfers, and may also apply to new purchases. However, in all cases, that rate is only fixed for the introductory term--usually 6 to 12 months. After the introductory APR time period expires, your credit card APR may revert to a variable rate. Or your card may be one that reverts to a fixed rate that is relatively low. Keep in mind that like the introductory low rate, the fixed "go to" APR usually will be void if you make a late payment or exceed your credit limit.
  • Potential

    Some credit cards offer a fixed APR on balance transfers for the life of the loan; 4 percent to 7 percent APR is common. But these fixed rates do not usually apply to new purchases that may fall under a variable rate plan. Also, your payments are applied first to the lowest APR portion of your balance. So as you make purchases, your low fixed APR balance declines and your variable APR balance grows.
  • Warning

    No matter which type of APR you initially agree to, examine your credit card agreement thoroughly. There, you'll find that your credit card company reserves the right to change your APR any time it wishes, as long as they give you prior notice; 15 days is typical. Of course, they must notify you according to the terms of the agreement. The notification may be included with your monthly statement, on a small slip of paper called a buckslip--so named because it's about the size of a dollar. Or it may be sent to you in a separate mailing. Either way, these notifications are very easy to overlook.
  • Prevention/Solution

    You can eliminate your worries about a variable credit card APR by spending only what you can afford to pay off each month. If you need time to pay off your existing balance, shop for a balance transfer card with the lowest possible introductory APR combined with a low fixed APR following the introductory period. Meticulously comply with the payment terms throughout the introductory period, and pay down your balance aggressively. Transfer your balance again if rates on your card go up.
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