The Difference between Variable or Fixed Rate Credit Cards

When selecting a new card, you may narrow down your search to two plastic money offers. At first glance, they're both worthwhile. The only difference between them is that one has a variable APR and the other one comes with a fixed APR. The question is, which one is better?

Most customers believe that fixed rate cards are a better option due to the fact that interest rates are "fixed", i.e. they stay the same no matter how economic indexes changes. Is it really a right assumption? Let's try to clear this question up and set the difference between these two types!

Actually, a fixed low APR card is a rare breed. The thing is, most lenders prefer issuing cards with variable rates as they protect them against economic hardships. In other words, lenders may rise your APR whenever they deem it appropriate. And what about customers? Do they also benefit from these cards? First, let's differentiate both types.

Variable interest rate cards are based on some underlying economic index. It may be a prime rate or the Treasury bill rate. A company just adds the margin to this index to set a variable interest rate. As this index moves up, the APR on a variable rate card does as well. If the index goes down, so does your APR.

Rates on low APR for life speak for themselves. In theory, they're supposed to be fixed for the life of your account. In practice, top credit companies reserve the right to change interest rates at any time. However, they must warn you 15 days in advance about this change in writing.

Not the same story with variable rate cards. First off, variable rates change quite often and by law, lenders are not required to notify you in advance. Needless to say how these sudden moves can affect your financial matters.

Speaking about the advantage of variable rate offers, it should be mentioned that your interest rates can be really low, by all means if the underlying index is also low. But just like that, your rate may moves up when the index increases.

Fixed interest rates are especially valuable when it comes to balance transfers. A borrower with massive debts can hardly pay off the entire balance within the introductory period, and that's where fixed low APR balance transfers come as the right solution. Paying down heavy balances on low rates will save you a pretty penny.

All in all, both types have their pros and cons. If you want to benefit from your card in the long-time period, fixed rate plastics will suit you best. With these cards, your interest rates cannot be changed without notification. If you have short-term goals, you'd better choose the card with variable interest rates and make the most of it. But keep in mind that your rates may move up and down depending on the fluctuations of the index.