Choosing the Best Credit Card for the Purpose

Choosing the Best Credit Card for the Purpose

by Ajeet Khurana

Few things in the world can give a person the same sense of independence as that which is provided by a credit card.

The truth is you need to be extremely cautious when applying for a credit card, as it is a complex web of fees, charges, and interest rates (not to mention hidden clauses and terms which are not only illegal but also financially dangerous) which can sink you deep in debt.

If you are financially responsible, you should make an effort to avail of a credit card and start using it wisely. But first, you will need a layman's crash course on credit card interest rates before you secure and swipe your card at the first opportunity.

Two different loan seekers could get different interest rates. But usually the means for assigning interest rates on an applicant is based on his credit history. Given that your credit ratings are good, the loan that you are approved for could be a very affordable one. If your credit rating is poor, you would have to try to rebuild it before you can get approved for good loan deals.

This may be done the hard way, by taking the brunt of the compromised interest rate which the bank will assign to you, or to choose a plan with a lower credit limit so that the interest rate follows accordingly. You could also think about getting a prepaid credit card. But this method of rebuilding credit is hard to secure and it charges even higher interest costs.

Sure enough, there are low interest credit cards or even zero percent interest plans which are available, but as expected, there is a catch: most credit card providers make sure that this low interest is charged for only an introductory period. Thereafter, a much higher rate of interest is charged on the card. For a monthly or annual fee, service alerts are offered, informing the borrower as to when his low interest period is due to expire.

However, most of these plans have no lasting appeal. This is because they address only short term requirements.

Some credit cards can also be used in an ATM to take out funds within the credit limit, but the interest is usually charged from the date of withdrawal, and not from the monthly billing date. This means that the issuer gets a higher payback in interest rate from the transaction than usual.

Ideally, you should be very clear about the deal that you are being offered. You must bear in mind that different providers will make different offers. Some may lure you with teaser offers of low rates for a certain period, whereas the regular rates can get as high as 40 percent.

Since there are no fixed regulations concerning interest rates and penalties on late payments, some issuers forfeit the teaser rates if the borrower does not make the payment on time, and replaces it with a penalty interest rate. Some can even be so unscrupulous as to charge interest even if the balance is fully paid on the due date.

One should make an effort to find a card that will be charging low rates of interest. But low interest rates are not enough. At the end of the day, the borrower must not end up feeling cheated.