What to Take Into Account When Doing a Rate Comparison?

Answer 1

Most consumers know to compare interest rates before choosing to apply for a credit card or a loan. One of the problems millions of consumers face is trying to pay credit card bills at high rates of interest. Because of this, there is much talk about interest rates. However, when performing a rate comparison, consumers should look closely to ensure they are making a fair comparison among credit cards or loans.

For example, many consumers compare the rates of interest between credit cards before doing a balance transfer. On the surface, it may make more sense to transfer your balance to the card that boasts the lowest interest rate. However, upon closer inspection, you may learn that the advertised low interest rate is for new purchases only and that the rate of interest that applies to the balance transfer is actually higher than you are currently paying. Unfortunately, this has happened to many consumers who did not read the fine print before authorizing a balance transfer.

Rate comparisons involve much more than credit cards. Consider how a home equity loan is financed. While most of these loans are based on a variable rate of interest, some lenders do make home equity loans with a fixed interest rate. The difference between the two methods of figuring interest can be significant, so it pays to shop around and compare rates before obtaining any kind of credit.

Another important thing to look at when you are comparing interest rates is what type of fees the credit carries and how much they run. For example, you may find a credit card with an attractive interest rate but it may have an application fee, an annual fee, over-the-limit fees, and late fees. While some of these charges are standard, make sure you are aware of all of the fees associated with any type of credit you obtain. Otherwise, your attractive rate of interest may not be so attractive.

The same is true when you obtain other types of credit, such as loans. Look at each fee and compare the amount among lenders so that when you obtain the loan, not only will you have a low interest rate, but the total amount the credit will cost you is reasonable as well.