Why low APR credit cards are better than the balance... - Other Questions


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Credit Card Applications » Questions » User Questions » Other » Why low APR credit cards are better than the balance transfer credit cards?

Why low APR credit cards are better than the balance transfer credit cards?

Answered on | Updated on March 1st, 2011
The content is accurate at the time of publication and is subject to change.

Many credit card customers seem to prefer balance transfer credit cards, especially when they run into debt. They are not entirely wrong as a lot of card issuers are offering incentives to credit card customers, to attract them. One of the biggest incentives of the balance transfer credit card offers is the 0%  interest rate offer, this introductory period, could last more than a year in some cases. Interestingly, the zero percent interest is not just on the balance transferred but also for all the purchases made with the new credit card during the promotional period. This makes for a good deal which therefore has customers lining up for this offer.

However, if a credit card customer considers the long term profit, low APR credit cards are far more beneficial in those cases where the chances of paying off the debt before the end of the promotional period are very slim. A simple example would work well in this case. Let the customer have a 5000 dollar credit card debt. Imagine that he goes for a credit card that offers 0% interest for the first 12 months after which the APR jumps to 25%. This is a decent deal by most standards. If the customer can pay up to 1000 dollars every year end, he would end up with a debt of 4000 dollars with an APR of 25 percent. At the end of the year, the debt along with the additional interest would be 5000 dollars, and after paying off 1000 dollars, would be left with a debt of 4000 dollars.

On the other hand, if the customer goes for a low APR credit card without rewards or special incentives, a low ten percent APR calculation would be different. By the end of the first month, the customer would be left with a debt of $4500 after paying off $1000 at the end of the year. Similarly, by the end of the second year, the customer would be left with $3950. The calculations would change based on what the interest rate is, and how the interests are calculated and when the payments are made. The bottom line is that, for those customers who cannot make big payments soon, and are likely to hold on to the debt, a low APR is far more suitable.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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