Reading the fine print when selecting a loan or credit card can save you a lot of money. Often creditor offers appear to be similar at the first glance, but pay attention to a few key factors when choosing a credit grantor.
1) APR or Annual Percentage Rate. The APR is the amount of interest and fees you’ll pay for using credit. The APR should be thought of as the cost of credit. As such, a lower APR will result in a lower cost of use and a higher APR will have a higher cost of use.
2) Length of the interest rate. Often creditors will provide low introductory or teaser rates, but the rate may shoot up drastically after the introductory period expires. For instance, an offer for a credit at 0% APR should be suspicious. If you receive an offer with an exceptionally low interest rate, determine if it lasts only for a promotional period. The interest could jump to 21% or more after 6 months to a year.
3) Annual fees. Annual fees are increasingly common in today’s credit world. Check if the offers you are comparing charge annual fees, as they increase your cost of using credit. Typically annual fees range from $15-$60 per year.
4) Transaction fees or other charges. Balance transfers and cash advances usually have much higher interest charges. Also, compare over-limit and late charges. It’s best to avoid depending on these costly services, but if you are in a bind, you’ll want to pay less for them.
What is your grace period, or the amount of time before your creditor will start charging you interest on a purchase? Typically, grace periods start at 31 days from the date of purchase, but they vary. The longer your grace period, the better.
Also consider special programs, options, or rewards. Taking advantage of creditors’ offers or rewards can decrease the cost of credit. However, it is important understand the specifics as these programs have restrictions and can be complicated.
5) Customer service. Make sure that the creditor you choose has a 24-hour customer service line and online access. Consumers may also want to check with the Better Business Bureau to see if any consumer complaints have been filed against the lender.
As it’s an unpleasant task, most people want to avoid reading the small print. But, doing so is the only way you’ll know which offer will help you save and work best with your approach to credit usage.