Dr. Akash Dania shares credit card expertise
The expertise of Dr. Akash Dania, Chair of the Department of Accounting in the College of Business, has been enlisted for the article “Best Credit Card Rates” in the online publication Wallethub.
Dr. Dania’s expertise on credit card rates is featured in the “Ask the Expert” section at the end of the article. Dr. Dania comments are featured directly below, with the link to the entire article at the end:
Ask the Experts: Sizing Up the Best Credit Card Rates
Akash Dania
Ph.D., Chairperson – Department of Accounting, Economics, Finance & Aviation Programs, Editor-in-Chief, Accounting and Finance Research, Professor of Finance, College of Business, Delaware State University
Why are even the best credit card rates still so high?
Even though we have seen market interest rates drop, credit card interest rates are unlikely to drop.
Credit card issuers usually do not respond to declining rates by dropping the cost of credit for cardholders.
One reason that the credit card issuers offer relatively higher interest rates to consumers now than they did in the past is that consumer protection laws such as the CARD Act of 2009 have made it difficult for issuers to reprice the costs of debt after selling a credit card to consumers. By pricing a high-interest rate, the credit card issuers are insulating themselves from interest rate risk or default risk eventualities which may occur in the future.
Interest rates have also been climbing upward because most consumers don’t shop for credit cards based on interest rates. Most credit card consumers look at credit card rewards and perks instead, paying little attention to the Annual Percentage Rates (APR) that they end up paying on a balance which they carry.
What’s the best way to use a 0% intro rate?
A 0% intro offer may help a credit card user manage their debt (such as to pay down the balance on a high-interest credit card or loan which they may currently be carrying) or if the user has a large purchase to make (such as making a down payment for a big-ticket item, pay for a vacation, or emergency). However, it requires that the user uses this offer responsibly.
When considering a 0% intro APR offer, a user should carefully review the terms and conditions of the offer. Most come with an introductory offer. You should understand the introductory period and whether the terms being offered are best for you. You may also want to consider if you are unable to pay off your balance before the introductory offer expires if you are late on your monthly payments or if you are unable to pay the minimum balance due during the offer period and beyond.
Should you always try to get the credit card with the best interest rates?
Trying to get the best interest rates is recommended for users who will be carrying a balance on a high-interest card month to month. If you are in a category where you can afford to pay your credit card balance on your high-interest credit card in full by its due date, then you may look at other aspects, such as perks or awards which the credit card offers to you.
Even then, compare the monetary aspect of the perks and the cost of the card to you (any annual associated fees or interest rate which you will pay if you were to carry a balance on your high-interest credit card vs a lower interest rate credit card).
Why aren’t there more credit cards with low fixed rates?
With most credit cards, the interest rate will fluctuate based on an index rate such as the prime rate.
The prime rate is a fluctuating rate that is tied to the federal funds’ target rate, which is reset periodically by the Federal Reserve. With fixed-rate credit cards, on the other hand, the APR will not fluctuate based on an index rate such as the prime rate. And, although a card issuer can charge a fixed rate, legal restrictions are limiting how and when that is allowed.
When the 2009 Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 made it difficult for credit card issuers to change the “fixed” rates – with a 45-day notice period and other requirements – issuers shied away from offering them, and variable-rate credit cards became the norm in the industry. A point to be noted: the “fixed” rates before the 2009 CARD act were not all that fixed anyway. The reality was that card issuers had the right to change the fixed rate for several reasons, as long as they gave cardholders a certain amount of notice.
To read the entire Wallethub article, which also includes the publication top picks for credit card rates, click on the below link:
https://wallethub.com/best-credit-card-rates#experts=Akash_Dania