How to choose the low interest credit card that's right for you

citi HOW TO CHOOSE THE LOW-INTEREST CREDIT CARD THAT'S RIGHT FOR YOU A credit card with a low interest rate can seem like a no-brainer. But before you apply for the first one you come across, hold on. It pays off to sort out the differences between similar-sounding low-interest credit cards so you can make the smartest choice. If you're ready to apply, figuring out which card to pick comes down to understanding the terms that apply to the low interest rates that caught your eye. WE'RE HERE TO HELP. First, take a look at the credit card offer details. Many cards offer introductory rates on balance transfers and/or purchases. Then, make sure you understand the rates, and all of the terms that will help you determine which card is right for you in the long run. Here are some of the key terms to know when you're comparing low-interest credit cards - and the reasons why knowing them can help you make a good choice. UNDERSTANDING APRS ANNUAL PERCENTAGE RATE (APR) Credit card companies may charge interest in exchange for letting you carry balances. You may avoid an Interest Charge on purchases if you pay your balance in full each month. However, if you pay less than the full balance, an Interest Charge may be added to your account. The Annual Percentage Rate is a measure of the cost of credit, expressed as a yearly rate. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: The APR gives you a standardized starting point for comparing cards. The higher the APR, the more that you will pay. Occasionally, card companies will run promotions during which you'll get a lower APR on purchases of a certain type (like gas). VARIABLE APR A Variable Interest Rate is an interest rate that changes based on an economic index such as the Prime Rate or the U.S. LIBOR Rate. For example, a variable rate credit card with an interest rate like "Prime + 5.9%" means that the interest on the card is based upon the Prime Rate plus an additional 5.9%. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: Knowing that the APR can go up (or possibly down), and by how much, might be the deciding factor when choosing between two similar cards. NON-VARIABLE APR Just what it sounds like: the rate is fixed. However, some card issuers reserve the right to adjust a non-variable APR depending on how you manage your account and/or other factors. But in that case, they'd have to tell you first. Again, this detail should be considered. You can most likely find this information on the card issuer's website. If not, call and ask. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: If you're the type of person who doesn't like surprises, especially when it comes to your financial life, finding out that a particular card is offering a non-variable APR could be a deal-sealer. DAILY PERIODIC RATE This is the rate applied to your outstanding balance to determine the finance charge for each billing period. A daily periodic interest rate is calculated by dividing the APR by either 360 or 365, depending on the card issuer. Then that rate is multiplied by the amount you owe at the end of each day. This amount is then added to the previous day's balance, which means that interest is compounding on a daily basis. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: While the APR can be a simpler means of comparison, understanding the daily periodic rate means understanding how much the credit may cost you on a monthly basis. Since most of us manage our money by looking at monthly expenses, that's a good number to know. EXAMPLE: APR = 15% DAILY PERIODIC RATE (DPR) = 15% (APR) / 365 (1 YEAR) = 0.04% DAY 1 DAY 2 ACCOUNT BALANCE: $10,000 ACCOUNT BALANCE: $10,004 % DAY 2 INTEREST: DAY 3 INTEREST: .04% (DPR) X $10,000 (BALANCE) = $4.00 .04% (DPR) X $10,004 (BALANCE) = $4.00 DAY 2 BALANCE: DAY 3 BALANCE: $10,004 (BALANCE + INTEREST) $10,008 (BALANCE + INTEREST) ZERO INTEREST PERIODS INTRODUCTORY PERIOD GRACE PERIOD ON PURCHASES A set period of time the low A Grace Period on Purchases is introductory interest rate lasts. the length of time you can use These vary, but are usually at credit without paying interest on least six months. After that, the it, and many credit card issuers regular APR kicks in on whatever give you one if you pay the balance you may have left. Not balance on your statement by all cards offer a low introductory the due date each month. If you period on both balance transfers don't, you may not get a Grace and purchases, so make sure you Period on Purchases until you look closely. pay the balance by the due date for two months in a row. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: If you typically carry a balance, Some cards don't give one at all, the longer the introductory period others offer generous ones, while lasts, the longer that you'll be able still others provide them only with to take advantage of the low APR. stipulations. ANNUAL FEE Many issuers charge an annual membership fee to use a low-interest credit card. Again, this is something that varies. Occasionally, card issuers charge the annual fee in monthly installments, rather than billing you for it all at once. WHY IT MATTERS WHEN CHOOSING A LOW-INTEREST CARD: Before you let the annual fee (or lack of one) be the deciding factor, do a little math: Consider how much the low interest rate is likely to save you in a year over a higher-rate one without a fee. It may become clear a fee is worth it. FOR MORE CREDIT CARD TERMS YOU SHOULD KNOW, CHECK OUT 9 COMMON CREDIT TERMS THAT WILL HELP O TO INCREASE YOUR FINANCIAL KNOWLEDGE. %3D