Many consumers are easily mislead when selecting a credit card. Attracted by what appears to be a good offer on the headline advertisement, they can be surprised when they start to use the card and discover that all was not as it first appeared. This makes it vital that consumers acquaint themselves with the actual full terms and conditions of the card they choose to apply for.
The details appear in what is known as the Schumer Box, which contains a chart highlighting rates and fees that each card issuer is legally obliged to provide. Too often this box is ignored or skimmed, simply because consumers are not familiar with the financial jargon. An explanation of the common terms can help consumers to be more confident when making a decision.
APR’s simply stands for annual percentage rates, and refers to the interest which is levied on any outstanding balance. However cardholders are often caught out by simply noting the headline APR rather than taking into account the many variables. There are often four distinct APR’s on one credit card. There is the purchase APR which applies to purchases made on the card. Next there is the balance transfer APR which may well differ from the purchase APR but also runs concurrently, effectively meaning that two APR’s are applied at the same time if one arranges a balance transfer and then makes purchases on the same card.
Next there is the cash advance or cash transaction APR. This refers to cash obtained via the credit card, typically though an ATM. The cash advance APR can be shockingly high. Customers that utilize balance transfers, make purchases and take cash advances will find they have three concurrent APR’s which can be very confusing.
Cash advance APRs are surpassed in cost only by the penalty APR which is the fourth interest rate applied. A penalty APR can be applied by the card issuer when the cardholder pays late or misses a payment. By law the card provider must review this penalty rate at the end of six months. Very often consumers take credit cards because they are attracted to a low introductory APR and fail to realise that a penalty APR can wipe this out in one fell swoop.
It is imperative that consumers acquaint themselves with the various APRs which can be applied, or which can be avoided completely by never carrying a balance, always paying on time and never taking a cash advance.
The grace period is very simple jargon and merely refers to the amount of time a consumer has before interest is applied if the balance is not paid in full. UK card holders can benefit by a typical grace period of 56 days, but their American cousins are rarely offered a grace period of even 30 days. It is important to be aware of the grace period.
A particular example is provided by the Applied Bank secured Visa card which offers a low fixed rate APR of 12.99% which can appear very appealing. However the Schumer Box reveals that there is no grace period at all, meaning that every transaction incurs interest from the moment it is made. If this had been misunderstood or neglected when applying for the card, those who intended to pay their monthly balance in full would have an unpleasant shock when their statement arrived.
Credit card fees are another component of the Schumer Box. Various fees are expressed in either percentage terms or as a monetary amount. Generally whichever is the greater amount is the fee which will be incurred. Fees are applied to balance transfers, late payments, returned payments, exceeding the credit limit, cash advances, and foreign transactions. Additionally some cards carry an annual fee of a monthly management fee.
Additionally the Schumer Box contains information regarding explaining how variable interest rates can change, and how balances are computed. This information is not as essential as the other terms and conditions which the consumer has more control over, through understanding them.
By familiarising oneself with the financial jargon which credit card agreements feature it makes it more likely that the terms and conditions will actually be perused, rather than skimmed over or neglected. Too often those who fall foul to conditions they had failed to comprehend cry victim, but have no recourse at all as each individual takes responsibility by signing that the terms and conditions have been read.