Credit Card Guide

What is a Credit Card Penalty Rate?

4 August 2010 by CreditCardsCo™

Even though credit cards are a great way to pay for things that you currently don't have the money for, there are a number of clauses that one has to be aware of in order to avoid a number of unexpected expenses. Before we start to talk about credit card penalty rates, we will take out a bit of time to understand the basics of a credit card and how it works. This in effect will make it much easier for one to understand how, why and what credit card penalty rates are.

A credit card is a temporary loan that can be used to pay for both products and services. Depending on which credit card company you have opted for and your current credit card rating, you will be given a certain credit limit that you will be expected to stick by to on a monthly basis. Nearly all credit cards do not require you to pay off your entire debt used on a monthly basis. Instead they have a pre-set minimum limit that has to be paid either way. Even though this seems like an attractive deal, what most people don't understand is that the longer you leave your outstanding dues for, the more interest you will end up incurring on that particular balance (see: Credit Card Payoff and Minimum Payment financial calculators). What that means is that you will gradually be putting more strain and causing greater difficulty for your self in the future to keep up with the repayments. This is where the concept of credit card penalty rate comes into play.

There are two different types of credit card penalty rates that you could expect to see your self pay if you do not take proper account of your debts. The first credit card penalty rate would be in relation to not being able to meet the minimum payment requirements on a monthly basis by your credit card company. The second credit card penalty rate would be in relation to not being able to pay outstanding dues for a certain period of time such as six months. The longer you leave a payment, the more likely the chances that that payment will turn into an irrecoverable debt. It is for this very reason that the concept of penalties exist so that credit card owners are forced to pay as soon as they can.

The penalty rate that you would be expected to pay will be based on a number of different factors. The rates are also variable depending on current market conditions and the amounts that are due. The lower the amount that is due will generally mean a lower penalty rate and vice versa. Having to pay a credit card penalty rate will not only mean that you are paying more than what you initially expected, but also will have quite a huge impact on your over all credit rating. Before you decide to commit yourself to any form of credit card agreement, make sure you read all the terms and conditions reassuring yourself that you will easily be able to keep up to date with all repayments on a timely basis.

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