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Interest Rates Page 3
Annual fees
The annual fee (or other periodic fee) the issuer charges for you to have the card. You may have to pay this fee even if you never use the card.
Most credit card issuers charge annual membership or other participation fees. These fees range from $15 to $35 for most cards and from $50 and higher for some "premium" or "gold" cards. Some institutions still offer "no fee" cards, but these are less common than they used to be. Other institutions waive the fee for the first 12 months, but then bill the cardholder as soon as the second year begins. Still other issuers have a use fee (e.g., $1.75) for each month the card is used, meaning cardholders will pay $21 a year if the card is used monthly.
The best deal for most consumers is a "no fee" card. Some credit card issuers will reduce or eliminate annual fees if cardholders indicate they plan to switch to another company's "no-fee" card. A change can be requested by phone. You also have the option of canceling the card within a stated period to avoid the annual fee. There may, however, be a cancellation fee.
Minimum finance charge
Any minimum or fixed finance charge that could be imposed during a billing cycle. A minimum finance charge usually applies only when a finance charge is imposed, that is, when you carry over a balance.
Transaction fee for cash advances
Any charge imposed when you use the card for a cash advance. If the card charges transaction fees for purchases, these fees will also be stated here.
Many issuers charge cash advance fees, which typically amount to between 2% and 3% of the total cash advance. The fee may have a minimum amount, often $2, and a maximum amount, such as $10. Note the Schumer box in Figure 1 reveals the cash advance fee is 2% with a minimum fee of $3.00. The cash advance fee may be assessed for each cash advance taken. A consumer who is charged $5 for $20 in cash is paying a transaction fee equal to 25% of the amount borrowed. Using a credit card to obtain a cash loan is often the most expensive way for consumers to borrow money.
Some issuers charge higher interest rates on cash advances than for purchases. As an example, one card issuer offers a 7.9% APR on purchases made with the credit card, but charges a rate of 21.65% APR on cash advances. Issuers are not required to disclose the cash advance APR rate in solicitations or on applications. However, the information is usually provided in materials sent with the credit card to the applicant. A cash advance can also be obtained with a credit card at a bank or an automated teller machine (ATM) or by using checks linked to a credit card account.
Several card issuers offer cash advances with 25-day grace periods. The transaction fee they charge for the cash advance, however, may be more expensive than simply paying interest from the date of the advance.
In addition, if the cash advance is not paid off in full when due, finance charges are accrued at the cash advance rate beginning on the first day of the new billing cycle until it is paid back. Below is an example of charges that could be imposed for a $200 cash advance that is paid in full when the bill arrives:
Cash Advance Fee = $4 ($200 x .02 = $4)
Interest for one month = $3 (18% APR ¡À 12 = .015/month; $200 x .015 = $3)
Total cost of cash advance = $7 ($4 fee + $3 interest = $7)
In comparison, a $200 purchase with a credit card having a grace period would cost nothing if it is paid off promptly in full by billing due date. Top... Go To Page 4
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