Fixed Rate Credit Card
A variety of prime rate credit cards are available to the Christian seeking the best value in the credit industry. Information on these as well as a fixed rate credit card or one with a variable rate is not difficult to obtain, considering the abundant advertising visible on the Internet alone. What is the difference between the various types of cards? Who decides the interest rates charged? How can a person decide which account is right for his or her particular situation? These are some questions this article will seek to address.
The prime rate is the index for most credit cards, as well as other types of loans. Home equity loans, personal loans, car loans -- all are affected by the prime rate. The Wall Street Journal takes note of the prime rates (rates at which the banks lend to their most credit-worthy customers) of the thirty largest banks. These banks' prime rates are affected by the federal funds rate, which is the interest percentage at which the banks can borrow funds from the Federal Reserve. When 3/4 of the banks change their prime rates, the Wall Street Journal adjusts its reckoning of the prime rate, which is effective the day of publication. Most financial institutions rush to adjust their rates accordingly.
Not surprisingly, prime rate credit cards are reserved for those with very good or even excellent credit. Some prime rate credit cards offer 0% interest for an introductory period of over a year. Others offer extremely low fixed interest rates. A fixed rate credit card is self-descriptive: the interest which is charged is fixed, no matter how the prime changes. Variable credit cards may have a low or 0% interest introductory period for a certain time. Then the interest changes to the sum of some economic index, usually the prime, plus a certain margin.
Note that a fixed rate credit card interest percentage may not be as 'fixed' as one might hope. Although such cards often trumpet the low APR which will be obtained even after the introductory period, all it takes to turn a fixed account into one that can vary is a written paper giving thirty days notice to the customer. This warning is not quite so loudly proclaimed, and may often be found among the multitude of handbills tucked into a statement, in print requiring a magnifying glass. Some companies will at least have a declaration in bold print on the statement to the effect that 'THE TERMS OF YOUR ACCOUNT HAVE CHANGED' and directing the customer to read the accompanying information. One can avoid new account terms only by indicating in writing that these are unacceptable. However, this will require one to close the account, and, of course, pay the balance under the previous terms. Who wants to be bothered with the details of such arrangements? Besides, closing an account every time rates get unreasonable might not reflect well on a credit score.
Variable cards have similar problems. It is true that if the prime rate goes down, one's payment may go down. That sounds like a great deal. When the Federal Reserve lowers federal fund rates, consumers may eventually see at least some decrease in interest rates. However, most variable cards have a 'floor' which limits the amount that interest rates can fall. Although credit companies manage to rapidly pass on increases to their customers, more than one financial article has wryly noted that decreases are processed quite a bit more slowly. Several months may pass before any savings are apparent, and the decrease will not match the Federal Reserve cut. Sometimes, in periods of falling rates, companies will simply change the margin which is added onto the prime rate, ensuring their own profits with gymnastic moves that can exhaust the patience of even the most committed Christian. No wonder that the Word of God observes "The rich ruleth over the poor, and the borrower is servant to the lender." (Proverbs 22:7)
Aside from the observation that it is better not to be a borrower at all, what can a Christian (or any person) do to deal with the multitude of choices available? First, avoid getting into more debt. This is easier said than done, but it is a goal which a Christian should consider worth working toward. Keep track of everything spent in one month to get a general idea of spending patterns. After a week or so of doing this, certain spending 'black holes' will become apparent. These are areas which are consuming a person's finances. Unlike real black holes, these 'black holes' in family finances can sometimes be plugged by thinking ahead. For example, if a person buys a pack of juice boxes or other favorite drinks for school/work lunches (about $2-3), he or she can eliminate spending at least $1 a day on vending machine drinks. Snacks for school/work lunches work the same way. Spending $2.50 for a package of cookies is much more economical than handing out money each day for cafeteria snacks. A person may want to splurge on favorite items as a special treat. The point is not deprivation, but wise use of resources. The two items above alone can save about $10 a week in expenditures. Imagine the results of this same mindset applied to the rest of one's purchases.
Internet searches can reveal the best deals on credit cards. Take time to read all the fine print on the best offers. A fixed rate credit card with a low APR is generally the best tool for handling unexpected expenses. However, plan ahead and monitor the use of even prime rate credit cards carefully to ensure that they remain tools, and not shackles to further indebtedness.
Fixed Interest Rate LoanA fixed interest rate loan tends to be a better choice in loans when working to plan a budget and map one's financial future. This is due to the regular payment amounts it promises which lend better budget stability. A variable interest rate loan can be a little trickier in budget plans, but still manageable in the planning process. The main thing about the fixed rate note is that the borrower will always know how much the finance charge amount is. One will never have to question it. However, while a variable note's finance charges change annually or every few months depending on the terms, the disclosure guarantees not to exceed a certain amount within several points.
If a borrower understands how finance charges vary, then they will not have a problem knowing what to expect in the repayment. But if one does not understand how the finance charges vary, then the note may cause confusion and problems when the payment amounts change. A stable payment amount also assures that they don't have to worry about paying more than originally expected. However, it is possible that they may end up paying more finance charges in the long term with some loans, especially if the prime index drops. This key index determines the trend of all interest rates and a drop in the prime means note rates drop too.
When determining whether to get a fixed or variable interest rate loan, the first thing to do is to determine what kind of note one is applying for. The different interest types will be more appropriate for long term versus short term loans depending on the purpose of the note. For instance, a fixed interest rate loan on student funds that have to be paid back right away might be the best option for the purpose. A set amount will not lend any surprises and the payee will always know what to be sure to have available for the payment as part of their monthly budget. However, if getting student aid that doesn't have to paid back right away, they may find lower rates will be available with a variable interest rate loan at the time they begin repayment and have a more flexible income. The problem with this is not knowing what the future rate will be when the student note comes due and payable.
Another example is when applying for car financing, the borrower may want to use a fixed interest rate loan also. What would be advisable in a auto purchase situation is to add up the savings between a variable and a fixed rate agreement. The borrower may find that they can save more money if they take the flexible contract. But if adding it up correctly, the variable contract may turn out to be more if the payoff is a lot higher than the unchanging payment note. When purchasing a car, it makes sense to simply do the research. This will help determine which one will work best for that situation. Doing the math will also help to have no regrets about which note is chosen because of the borrower's understanding of what the options were.
In getting a home mortgage, one may think that a fixed mortgage would be best, but this is usually not the case. If applying for a house loan, which is usually for twenty to thirty years, then the variable interest rate loan is probably the only way to go. This is simply because of the amount of time that the borrower will have the mortgage. A variable interest rate loan will help achieve lower interest rates at times when the prime rate drops and mortgage rates drop too. A fixed interest rate loan will stay at the same place the whole time, but with a changing economy, the number of points that rates could drop could make the mortgage highly overcharged and then the borrower will have to consider refinancing for a lower interest loan. The variable rate could possible keep getting higher and higher over the course of the life of the mortgage, and the cost may almost double what the purchase price. However, it could drop and the payments will be cut in half. With a fixed interest rate loan there is no worry about what the payment amount is going to be, but the overall repayment could be more over the life of the note.
When the necessity of a loan arises, a Christian needs to spend time in prayer about which type loan to get. Both types of interest rates have their positives, but it is important to determine which is best for the situation. The Lord will guide in these decisions and help find His will. This is greatly important so that He can show His strength even in the use of a loan. The Lord will provide wisdom when making this decision and help determine what works best for the situation. "O love the LORD, all ye his saints: for the LORD preserveth the faithful, and plentifully rewardeth the proud doer." (Psalm 31:23)