Terms and Conditions
What is the difference between a variable APR and a fixed APR?
In the Terms and Conditions of every credit card offer, you will see that the APR is either ‘fixed’ or ‘variable’. Every period you have to pay interest on the money you borrow, The type of APR determines how will this interest rate change from one period to another.
Variable APR means that the APR may change according to economic variables such as the Prime Rate or the LIBOR Rate. Most US credit cards are linked to either the Prime Rate or the LIBOR Rate. For example, suppose the Prime rate is 9% and you see a card that is offering a variable APR of 16% based on the Prime rate. The APR in this case is basically calculated as the prime rate plus 8% (9% + 8% = 16%). If the Prime rate will go up to 11% the APR on the account would go up to 19% (11% + 8% = 19%).
When the credit card offers a fixed APR, it does not actually mean that the APR remains fixed over time. In fact, on the Terms and Conditions you will read that the rates may change even for offers with fixed APR. The term “fixed” APR only means that the APR is not linked to any economic variable and doesn’t change automatically, but the credit card company is still allowed to change it after giving you a proper notice.
See also..
How do I do a balance transfer?
How do I compare credit card offers?
How do I apply for a credit card?
What are low APR credit cards/0% APR credit cards?
Last update: 2006-09-25 16:28
Author: BKO
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