Connect with us

Bad Credit

Which Credit Cards Have the Best Interest Rates?

Published

on

Interest rates are a key feature of many credit cards and play a big part in the potential fees you may be charged for carrying a balance.

If you already carry a balance on your credit card, you’re likely being hit with high interest charges that make it harder to pay off debt. The average APR for all credit card accounts is 14.87%, and rises to 16.88% for accounts assessed interest, according to the latest data from the Fed. But APR can be near 30% for some accounts, especially for consumers with bad or average credit (scores below 670).

You should understand the situations where you may incur interest charges and consider low interest or 0% APR credit cards if you have a history of carrying a balance or plan to finance new expenses.

Below, CNBC Select breaks down what you need to know about interest rates and how to find the lowest interest rates for credit cards.

What is an interest rate?

Card issuers refer to your credit card’s interest as your annual percentage rate (APR). An APR is the interest you’re charged for borrowing money against your credit limit.

In most cases, you won’t be charged interest if you pay off your credit card balance on time and in full each billing cycle. This applies to new purchases and typically excludes other transactions, such as balance transfers and cash advances, which often incur interest charges right away.

While card issuers express your interest rate annually, you can find the monthly interest rate, if you divide your APR by 12.

Let’s say you have an 18.74% APR: Divide by 12 to get 1.562% as your monthly interest rate. This means that whatever balance you carry on your credit card account will be charged a fee of 1.562% in addition to your payment. If your account balance is $3,000 during the month of July, you will pay $46.86 in interest for that month.

Variable interest rates vs fixed interest rates

Credit card APRs come in two forms — variable and fixed.

A variable APR fluctuates with the prime rate and can increase or decrease at any time. For instance, when the Fed cuts interest rates, your variable APR will likely decrease as well.

A fixed APR doesn’t change with the prime rate. Card issuers can still change your APR, but they need to notify you at least 45 days prior to making the change.

What credit cards have low interest rates?

Many of the best low interest credit cards are from credit unions. If you don’t mind jumping through a few minor hoops, you can benefit from lower than average interest rates, compared to major card issuers.

Credit union cards typically require you to become a member, but many don’t charge a fee to join and offer various qualification options, such as residence or employer.

For example, the Visa® Titanium Signature Rewards Card from Andrews Federal Credit Union has a low 7.99% to 18.00% variable APR and requires membership to Andrews Federal Credit Union. But anyone can join by meeting the qualification requirements or opting to join the American Consumer Council (ACC) for free with the promo code “Andrews.”

Visa® Titanium Signature Rewards Card from Andrews Federal Credit Union

Visa® Titanium Signature Rewards Card from Andrews Federal Credit Union

Information about the Visa® Titanium Signature Rewards Card from Andrews Federal Credit Union has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

  • Rewards

    3X points on gas and grocery purchases and 1.5X points on all other purchases

  • Welcome bonus

    Earn 7,500 points when you spend $500 within the first 90 days

  • Annual fee

  • Intro APR

    0% for the first 12 months on purchases and balance transfers processed within the first 90 days of account opening

  • Regular APR

  • Balance transfer fee

  • Foreign transaction fee

  • Credit needed

You can also consider credit cards that offer no interest periods on purchases or balance transfers. The Citi Simplicity® Card offers a 0% APR for the first 21 months on balance transfers and a 0% APR for the first 12 months on purchases (after, 15.74% to 25.74% variable).

Citi Simplicity® Card – No Late Fees Ever

Citi Simplicity® Card - No Late Fees Ever

On Citi’s secure site

  • Rewards

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for the first 21 months on balance transfers and 0% for the first 12 months on purchases

  • Regular APR

  • Balance transfer fee

  • Foreign transaction fee

  • Credit needed

How to get a low interest rate

There’s no surefire way to get a low interest rate, but there are actions you can take to increase your odds of receiving the best interest rates. Consumers with good or excellent credit (scores of 670 and above) have a greater chance of receiving interest rates toward the lower range compared to those with bad or fair credit.

For example, say two consumers apply for a card with a 14.99% to 24.99% variable APR. One has excellent credit and the other has bad credit. Chances are the consumer with excellent credit will receive an interest rate near 14.99%, while the consumer with bad credit will receive a higher rate closer to 24.99%.

That’s a 10% difference, and can add up to a big difference in interest charges if you wind up carrying a balance on your credit card.

For instance, assume that the bad credit consumer receives a 24.99% APR and the excellent consumer receives a 14.99% APR. Both consumers incur $5,000 in credit card debt and plan to pay it off after 12 months. Here’s roughly how much interest each cardholder would accrue during the 12-month period:

  • Bad credit consumer: $702
  • Excellent credit consumer: $415

The bad credit consumer would pay $287 more in interest charges, due to their higher interest rate.

As a result, it’s key to achieve a good or excellent credit score. In order to improve your credit, make all your bill payments on time and in full; autopay can be a great asset. Also consider limiting new credit card applications as needed and using a small amount of your credit limit (the lower the better).

Information about the Visa® Titanium Signature Rewards Card from Andrews Federal Credit Union has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Bad Credit

How to Avoid a Prepayment Penalty When Paying Off a Loan | Pennyhoarder

Published

on

Look at you, so responsible. You received a financial windfall — stimulus check, tax refund, work bonus, inheritance, whatever — and you’re using it to pay off one of your debts years ahead of schedule.

Good for you! Except… make sure you don’t get charged a prepayment penalty.

Now wait just a minute, you say. I’m paying the money back early — early! — and my lender thanks me by charging me a fee?

Well, in some cases, yes.

A prepayment penalty is a fee lenders use to recoup the money they’ll lose when you’re no longer paying interest on the loan. That interest is how they make their money.

But you can avoid the trap — or at least a big payout if you’ve already signed the loan contract. We’ll explain.

What Is a Loan Prepayment Penalty?

A prepayment penalty is a fee lenders charge if you pay off all or part of your loan early.

Typically, a prepayment penalty only applies if you pay off the entire balance – for example, because you sold your car or are refinancing your mortgage – within a specific timeframe (usually within three years of when you accepted the loan).

In some cases, a prepayment penalty could apply if you pay off a large amount of your loan all at once.

Prepayment penalties do not normally apply if you pay extra principal in small chunks at a time, but it’s always a good idea to double check with the lender and your loan agreement.

What Loans Have Prepayment Penalties?

Most loans do not include a prepayment penalty. They are typically applied to larger loans, like mortgages and sometimes auto loans — although personal loans can also include this sneaky fee.

Credit unions and banks are your best options for avoiding loans that include prepayment penalties, according to Charles Gallagher, a consumer law attorney in St. Petersburg, Florida.

Unfortunately, if you have bad credit and can’t get a loan from traditional lenders, private loan alternatives are the most likely to include the prepayment penalty.

Pro Tip

If your loan includes a prepayment penalty, the contract should state the time period when it may be imposed, the maximum penalty and the lender’s contact information.

”The more opportunistic and less fair lenders would be the ones who would probably be assessing [prepayment penalties] as part of their loan terms,” he said, “I wouldn’t say loan sharking… but you have to search down the list for a less preferable lender.”

Prepayment Penalties for Mortgages

Although you’ll find prepayment penalties in auto and personal loans, a more common place to find them is in home loans. Why? Because a lender who agrees to a 30-year mortgage term is banking on earning years worth of interest to make money off the amount it’s loaning you.

That prepayment penalty can apply if you want to pay off your loan early, sell your house or even refinance, depending on the terms of your mortgage.

However, if there is a prepayment penalty in the contract for a more recent mortgage, there are rules about how long it can be in effect and how much you can owe.

The Consumer Financial Protection Bureau ruled that for mortgages made after Jan. 10, 2014, the maximum prepayment penalty a lender can charge is 2% of the loan balance. And prepayment penalties are only allowed in mortgages if all of the following are true:

  1. The loan has a fixed interest rate.
  2. The loan is considered a “qualified mortgage” (meaning it can’t have features like negative amortization or interest-only payments).
  3. The loan’s annual percentage rate can’t be higher than the Average Prime Offer Rate (also known as a higher-priced mortgage).

So suppose you bought a house last year and then wanted to sell your home. If your mortgage meets all of the above criteria and has a prepayment penalty clause in the mortgage contract, you could end up paying a penalty of 2% on the remaining balance — for a loan you still owe $200,000 on, that comes out to an extra $4,000.

Prepayment penalties apply for only the first few years of a mortgage — the CFPB’s rule allows for a maximum of three years. But again, check your mortgage agreement for your exact terms.

The prepayment penalty won’t apply to FHA, VA or USDA loans but can apply to conventional mortgages — although the penalty is much less common than it was before the CFPB’s ruling.

“It’s more of private loans — loans for people who’ve maybe had some struggles and can’t qualify for a Fannie or Freddie loan,” Gallagher said. “That block of lending is the one going to be most hit by this.”

How to Find Out If a Loan Will Have a Prepayment Penalty

The best way to avoid a prepayment penalty is to read your contract — or better yet, have a professional (like an attorney or CPA) who understands the terminology, review it.

“You should read the entirety of the loan, as painful as that sounds, because lenders may try to hide it,” Gallagher said. “Generally, it would be under repayment terms or the language that deals with the payoff of the loan or selling your house.”

Gallagher rattled off a list of alternative terms a lender could use in the contract, including:

  • Sale before a certain timeframe.
  • Refinance before a term.
  • Prepayment prior to maturity.

“They avoid using the word ‘penalty,’ obviously, because that would give a reader of the note, mortgage or the loan some alarm,” he said.

If you’re negotiating the terms — as say, with an auto loan — don’t let a salesperson try to pressure you into signing a contract without agreeing to a simple interest contract with no prepayment penalty. Better yet, start by applying for a pre-approved auto loan so you can get a pro to review any contracts before you sign.

Pro Tip

Do you have less-than-sterling credit? Watch out for pre-computed loans, in which interest is front-loaded, ensuring the lender collects more in interest no matter how quickly you pay off the loan.

If your lender presents you with a contract that includes a prepayment penalty, request a loan that does not include a prepayment penalty. The new contract may have other terms that make that loan less advantageous (like a higher interest rate), but you’ll at least be able to compare your options.

How Can You Find Out if Your Current Loan Has a Prepayment Penalty?

If a loan has a prepayment penalty, the servicer must include information about the penalty on either your monthly statement or in your loan coupon book (the slips of paper you send with your payment every month).

You can also ask your lender about the terms regarding your penalty by calling the number on your monthly billing statement or read the documents you signed when you closed the loan — look for the same terms mentioned above.

What to Do if You’re Stuck in a Loan With Prepayment Penalty

If you do discover that your loan includes a prepayment penalty, you still have some options.

First, check your contract.

If you’ll incur a fee for paying off your loan early within the first few years, consider holding onto the money until the penalty period expires.

Pro Tip

If you don’t have a loan with a prepayment penalty, contact your lender before sending additional money to ensure your payment is going toward principal — not interest or fees.

Additionally, although you may get socked with a penalty for paying off the loan balance early, it’s likely you can still make extra payments toward the balance. Review your contract or ask your lender what amount will trigger the penalty, Gallagher said.

If you’re paying off multiple types of debt, consider paying off the accounts that do not trigger prepayment penalties — credit cards and federal student loans don’t charge prepayment penalties.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.

This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.

Source link

Continue Reading

Bad Credit

10 things you didn’t know will help you get a mortgage

Published

on

Anyone who wants to apply for a mortgage right now will know that it’s not easy. Coronavirus has made the process of applying longer, while lenders are now more careful than ever about who they will lend to. You probably already know that having a healthy credit score is essential to a successful mortgage application, but how can it be achieved? Personal finance experts from Ocean Finance  weigh in with the top tips for making sure your application is a success – that you may not have heard about. 

1. Make sure your name is on all household bills

If you share a rental, it can be tempting to let someone else put their name down on the utility bills and just pay them back. If you want a mortgage, avoid doing this: bills with your name and address on them are proof that you pay them on time. This especially applies to the rent itself – never move into a house share without your name being on the contract. Before applying for a mortgage, ask your landlord for a letter confirming that you pay on time. 

Source link

Continue Reading

Bad Credit

How Can I Prequalify for a Personal Loan? A Guide

Published

on

When you are in need of money quickly, you very likely don’t want to sit around pondering a bunch of different options. You want to find the option that works best for you and utilise it. Unfortunately for so many people around the country, it can be difficult to get their hands on the money they need due to them having a bad credit score, or even no credit score at all.

How Can I Prequalify for a Personal Loan?

Photo, Varun Gaba.

Your credit score is thought of as being pretty important, as it shows your financial trustworthiness to financial institutions like banks, credit card companies, lenders, and more. Your credit score is one thing that will usually be considered by just about any company you apply for a loan through, so keeping a close eye on your credit score is imperative for your financial life.

No matter what your credit score looks like, knowing how you can prequalify for a personal loan can be a comforting feeling when you are in need of quick cash. After all, when you are eligible for personal loan prequalification, you feel a little better going into the loan process knowing you won’t have to wait around for a loan decision.

How is Pre-qualification Decided? Prequalifying for a personal loan can depend on several different factors that you will have to keep in mind, and it will vary greatly depending on the lender you are applying through. Here are two of the things you will need to keep in mind when it comes to your loan that could affect whether or not you prequalify for the loan.

— Your credit score; Yes, this is always going to be something you are going to need to think about. Depending on the financial institution or lender you are going through, you can bet that your credit history and score will play a huge part in whether or not you prequalify.

— The amount of your loan; How much money you plan on borrowing from the lender or bank is also going to play a part in deciding whether or not you prequalify.

To get the most out of your search for a lender that you could prequalify with, think about applying with more than just one lender. This way, you might get several pre-qualification offers, and this will allow you to sort through the lenders and decide which one works best for you.

How Can I Prequalify for a Personal Loan?

Photo, Christina @ wocintechchat.com.

The Pre-qualification Process: No matter where you are trying to prequalify for your loan through, you will find the process to be pretty simple and largely similar across most lending platforms. You will need to provide some information to the lender that will help them decide whether or not to prequalify you.

How Can I Prequalify for a Personal Loan?

Photo, Windows.

Some of the information you will need to provide includes:

— Your full name; You will want to make sure you provide your full legal name so you can make the process simple for yourself and the lender. Depending on the lender, you might also be asked to provide images of your government issued ID or driver’s license to validate your identity.

— Your income and information on your job; Your income and employment status are often considered over your credit score when it comes to pre-qualification for loans, especially if you are applying for a personal loan through a lender who deals with customers with bad credit or no credit.

— The loan amount you want; Of course, you will have to include the amount of money you would like to borrow. Make sure it is something reasonable, and something that you can realistically pay back on time.

What Will the Lender Do? If you are trying to prequalify through a lender who specialises in bad credit clients, then you won’t have to worry about your credit score being negatively affected by taking out your loan. However, if the lender reports to the credit bureaus, your payments could still make an impact on your credit score.

If not working with a specialised lender, you might find that the lender will do a soft inquiry on your credit when going through the pre-qualification process. No worries here, as this doesn’t put any dents in your score. If you prequalify for the loan you are looking for, you should get an alert via email from the lender of your choice.

The Money You Need: Hopefully, you will have prequalified for the loan you are looking for so you can ensure you have access to the money you need, when you need it. Whether you’re going through some unexpected circumstance in life or just need money to pay something off quickly, knowing you are prequalified for the loan you need is a comforting feeling, allowing you access to the cash you need for whatever you need it for.



Source link

Continue Reading

Trending