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for the privilege of being a cardholder. Cards also charge cash advance fees if you use the card to get cash. If your payment is late, you’ll be charged a late fee . If you transfer a balance, you may be charged a balance transfer fee . Some cards charge a foreign transaction fee if you use the card overseas and many cards charge an over-the-limit fee , if you go over the credit limit.
Transaction
Applicable APR and Fees
Caution!
Purchase
APR: The average credit card purchase APR in the U.S. is 15%. Fee: Some credit card companies impose a once- a-year charge of about $75 or $100 just to be a cardholder. APR: The cash advance APR can be several points over the purchase APR. Fee: Typically the fee for a cash advance is the greater of $10 or 5% of the cash advance. APR: A balance transfer APR is usually about 0-3% Fee: A balance transfer fee is about 3-5% of the transferred balance. APR: The average penalty APR in the U.S. is 28.5%. Fee: Late payments are also charged a fee. The average late payment fee is $37. PRODUCT PREVIEW
The purchase APR applies only to purchases made on the card. Some credit cards don’t charge an annual fee. Shop around! Using a credit card to get cash at an ATM or bank can be very costly. The APR is very high and interest begins accruing immediately. The low APR is a “teaser” rate to entice a card holder to transfer the balance from a credit card issued by one company to a card issued by another company. The low rate expires after a few billing cycles. Warning! A balance transfer fee may also apply. Cards have different time lines for triggering the penalty rate (also called the default rate.) Depending on your card terms, a payment that is even one day late may trigger a penalty rate which can be up to 35%! At that point, the penalty rate will apply to charges going forward. But if your payment is more than 60 days late , the penalty rate can then be applied to the entire card balance . The penalty rate reverts to the purchase APR after six consecutive on-time payments. Late payments are also charged a late fee. Know your credit limit! Going over the limit may trigger the penalty rate. Lenders may also charge an over-the-limit fee for exceeding the credit limit. Know what your credit limit is, and stay well below it. Shop around. These days it’s not hard to find a credit card that doesn’t charge a foreign transaction fee.
Cash Advance
Balance transfer
Late payment
Over the credit limit
APR: Going over the credit limit may trigger the penalty APR . Fee: $29 to $35. Fee: Typically 1 percent to 3 percent of the amount of purchase is charged as a foreign transaction fee.
Using the card outside of the U.S.
Reflect on Learning: Many people think that a credit card has only one interest rate, but as you see, a credit card can have several different rates in effect at the same time. To what type of charges do the highest rates usually apply? Answer: Cash advance. What can happen when you have a late payment? Answer: You are charged a late payment feeand the penalty APR may kick in for charges going forward. If you are more than 60 days late, the penalty rate, often upwards of 30%, can be applied to the entire card balance!
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 243
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