Good terms: Fixed vs. variable interest.
We previously defined credit card interest and outlined some of the different types that a lender can charge, including interest on purchases, balance transfers and cash advances.
In this article, we’re walking you through the difference between fixed and variable interest rates on credit cards. Hint: one doesn’t change (that often) and one does.
Read on to get a better understanding of the different ways interest can be applied to your credit card balance.
Fixed interest rate:
This is a common type of interest rate that generally stays the same over time, even if market conditions change. There are exceptions, however – as some cards come with an introductory low interest rate, and that rate will change when the promotional period ends. Other exceptions can include changes in interest rates if you’ve missed a series of payments, or if there’s a change in your account terms.
Tip: Before you apply for a credit card, always read the fine print. If you accept a low introductory rate offer, know when the promotional period ends, and be aware of the standard interest rate that will come into effect. You don’t want any surprises on your statement down the road.
Variable interest rate:
Some credit cards come with an interest rate that changes based on a public index rate. We get it, it’s confusing, so we’re going to let our lawyer explain the rest ...
“A variable interest rate is one that changes based on market conditions and is usually expressed as a variable index rate plus a fixed amount. Many banks use the Canadian Prime rate, which is set by the Bank of Canada based on its outlook for the economy. So for example, if your variable annual interest rate is equal to the Canadian Prime rate plus 3%, and the current Prime rate is 2%, your interest rate will be 5%. If the Canadian Prime rate later increases to 4%, your annual interest rate would increase to 7%.”
See? That was easy – now you can skip out on applying to law school and catch up on your reading instead.
Tip: Although a variable interest rate can fluctuate to your benefit, it’s always best to try to pay your balance in full before the payment due date to avoid paying any interest at all.
Now that we’ve gotten that out of the way, the final article in this series will discuss a couple of other important terms related to credit card interest — the grace period and revolving balance. Get ready, it’s a real page-turner, erm, scroller.
Sometimes, we use distraction tactics to avoid getting to the bottom of what’s really bugging us. Maybe we’ll scroll through social media, unintentionally consuming well-curated, picture-perfect profiles that can have a negative effect on our well-being. Or, we’ll fill our carts (say it with us, you don’t need another white relaxed-fit soft cotton t-shirt), hoping to fill an emotional void with more material possessions. Coach Carey says that when we suppress our emotions, they eventually show up in different ways. She suggests creating the space to sit with your emotions. “The first step to moving out of overwhelm is allowing yourself to feel it fully.”
* If Quick Check pre-approves a card, you can be 100% sure we’ll approve your application as long as:
a. There’s been no change in your credit file information, personal information or financial status from the time you receive your Quick Check results to the time you apply for one of our credit cards;
b. You’re at least the age of majority in the province or territory you live in;
c. Your application isn’t flagged for fraud prevention;
d. You don’t have an existing Capital One account; and
e. You haven’t applied for a Capital One account in the last 30 days or had an account with us that was not in good standing in the last year. In good standing means not past due, over limit, fraudulent, restricted, or part of a consumer credit counselling program or bankruptcy.
In some cases, we may not be able to open an account for you even though your application was approved. This can happen if we’re unable to verify your identity, or you don’t provide the required security funds if you’re approved for a Secured Mastercard®.