Credit Card Question & Answer

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Credit Card Applications » Questions » User Questions » Other » Why do credit cards with no annual fee charge higher interest rates?

Why do credit cards with no annual fee charge higher interest rates?

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Credit cards without an annual fee are the new buzz in banking. However, you will have to settle for higher interest rates when using these. You need to know the purpose for which you are holding a card before you to decide you need one. Credit card firms do not practice charity, they increase their margins constantly and selling a no annual fee card is just one way to increase their customer base.

Credit card companies make money through annual fees, and interests on late payments. They also charge miscellaneous fees; among these are overseas money exchanges for transactions done in a foreign company. No one card can satisfy all the needs of all customers. Each card can be custom designed to suit your personal needs. You need to plan out your expenses and think why you are getting a credit card before you sign on the dotted line.

A credit card with no annual fee will be of benefit, if you are well organized and pay your entire outstanding amount, by the due date. Every credit card has a grace period of a month, during which you need to sort out your finances and find the money to pay what you have borrowed. If you are unable to do so, you will be charged interest on the outstanding balance every month. Interest rates are much higher than traditional banking loans. If you have a no annual fee card, then make sure you are not going to be in a position where you will need to pay interest on the outstanding amount.

If you feel that you cannot make timely payments, then it is better to go for a credit card with an annual fee and lower interest rates. Being self employed or having an inconsistent income, this card will be to your benefit. Knowing that you are paid every month, this card will not be to your advantage, unless of course, you have no control over your expenditure.

Credit cards are normally used either for convenience or a necessity. A card for convenience is used in replacement of having to carry a large amount of cash and not wanting to spend it. A card for necessity is one that is used when you do not have any available funds or your income is inconsistent.

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