Making Sense of the Prime Rate

With any credit card that allows you to maintain a balance due from one billing cycle to the next, you are going to have to deal with paying finance charges. With many credit cards, the annual percentage rate (APR) is based on the Prime Rate. Therefore, it is beneficial to understand what the Prime Rate is and how it affects your finance charges.

In its simplest terms, the Prime Rate is an index that lenders use in order to determine their interest rates. Financial institutions generally use this figure in order to make sure their bottom line is protected. In addition, they add a bit of padding on top of this Prime Rate in order to earn a profit. This is necessary because the Prime Rate cost is what the bank expects to pay back for borrowing the money in order to loan it to you.

Up until 2001, the Prime Rate remained fairly stable. At this time, the rate was increased in an effort to help stimulate the economy. Over the next 28 months, the Prime Rate was gradually dropped from 9.5% to 4%. The Prime Rate had not been so low since 1959.

In 2004, the rate started increasing again in an attempt to stabilize the economy. This resulted in a Prime Rate of 7.5%. So, when you receive a credit card with a variable interest rate, be sure to add it to the cost to know what you are really paying.

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The Financial Dominance of the Credit Card Industry
Keeping Your Credit Card Safe
Traveling With Your Credit Card
A Look at Current Bankruptcy Laws
Fixing Mistakes on Your Credit Report
Flying With Credit Card Airline Miles
Get Stylish with Your Credit Card
Keeping Your Credit Report Clear
Modern Day Vending Machines
Using Pre-Paid Credit Cards for College Students
Making Sense of the Prime Rate
Protecting Your Credit Card Account Information
Reasons to Use a Credit Card Instead of Cash
Rising Minimum Payments: Friend or Foe?
Staying Out of Debt While Using a Credit Card
Pay Your Way Out of Debt with Your Tax Refund
Tips for Shopping Online With a Credit Card
Understanding Airline Miles Credit Cards
Understanding Cash Back Credit Cards
Understanding Prepaid Credit Cards
Understanding Rewards Credit Cards
Understanding Student Credit Cards
What to Look for in a Credit Card
What to Watch Out for in Pre-Paid Credit Cards