Interest is the price the consumer pays to borrow money. Credit card interest rates are typically higher than the interest rates of conventional loans. According to information compiled by Bankrate.com, current credit card interest rates vary from 7.16% for a Capital One Personal Platinum MasterCard to 20.65% for an Orchard Bank Platinum MasterCard. Companies charge higher interest rates for cash advances than for purchases. Interest rates for cash advances may be as high as 24%. Cardholders that pay their balances off each month have little need to be concerned about credit card interest rates, since most companies do not begin to charge interest on purchases until a grace period of about 28 days has passed. For those consumers who do not pay their balances off monthly, about 70% of all card holders, interest rates can be a very big deal.

What Difference Does It Make?

The average American has about $4000 in credit card debt. Suppose Mr. Average American wants to try to pay off that balance as soon as possible. Assuming that he makes no additional charges, if the interest rate on his credit card is 7.16%, he can pay the balance off in one year if he makes payments of $346.40 per month. If his interest rate is 20.65%, he will have to pay $371.78 per month. Having the lower interest rate saves him $316. To look at it another way, Mr. American decides that he can only afford to pay about $120 per month, which would be the minimum monthly payment on a credit card balance of this size. With a 7.16% interest rate, he can do it in three years. At 20.65%, it will take him four years. In this case the lower rate saves him about $1400. So, interest rate makes no difference to a cardholder who pays his balance off each month, little difference to someone who can make large monthly payments, but a lot of difference to the 7% of cardholders who can only pay the monthly minimum.

Get a Low Rate, Keep a Low Rate

In order to get a low interest rate, consumers have to shop for credit cards. It may sound strange, because normally most people think of shopping “with” and not “for” credit cards, but companies offer different rates and specials. There are so many different credit cards that companies have to compete for business. People with the highest credit ratings get the lowest rates and vice versa. In order to keep the rate low, cardholders must avoid late payments, because companies can increase an interest rate if a customer makes late payments, even on another company’s card.