Best Crypto Swap

By  Kelvin Mutembei October 11, 2023

Disclaimers: The content on this site is for informational purposes only and should not be construed as investment advice. While Beluga strives to ensure the accuracy and timeliness of information, there may be discrepancies when comparing our data to that of financial institutions, service providers, or specific product websites. Always consult with a professional before making any financial decisions.

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Beginner basics: How do credit cards work?

A credit card, usually a plastic or metal card, is a financial product similar to a personal line of credit that lets you make purchases now, but pay for them later. When you’re approved for a credit card, you get a credit limit that determines the maximum dollar amount you can charge to your card. As you make purchases, your available credit decreases. When you pay your bill, your available credit increases. With a credit card, you can carry a balance from month to month, meaning you can make a partial or minimum payment rather than paying your balance in full. The downside to carrying a balance is facing potential interest charges determined by your credit card’s APR, or annual percentage rate. Your credit card’s APR is effectively the cost of borrowing money. Remember, credit card interest is relevant only if you carry credit card debt from month to month, and it’s best to pay your balance on time and in full whenever possible.

Important credit card terms

Your understanding of certain credit card terms is essential when choosing a credit card. The terms and phrases listed below should be top of mind when you begin shopping:

  • Interest rate: Interest is the fee a card issuer charges for extending a line of credit. Your interest rates will determine how much your card issuer charges you for carrying a credit card balance from month to month. Rates are influenced by your credit score.
  • Annual Percentage Rate (APR): In the world of credit cards, your interest rate and your APR are interchangeable. Your credit card’s annual percentage rate is the interest you’re charged for carrying a balance on the credit card in a billing cycle.
  • Credit limit: This is your credit card’s spending limit and will vary based on your credit score. You’ll likely have different credit limits for different transactions. For example, your cash advance limit (if your credit card offers cash advances) will be lower than your credit limit for purchases.
  • Credit card balance: Your credit card’s statement balance is the amount owed at the end of a billing cycle. This amount will include all unpaid transactions made on your credit card and any unpaid fees.
  • Credit card issuer: Often confused with credit card networks — like Visa or Mastercard that facilitate transactions between merchants and card issuers — credit card issuers provide credit cards directly to consumers. Cardholders can receive credit cards from financial institutions like credit unions or banks.

How does credit card interest work?

Now that we’ve covered the basics, let’s dive into what makes many applicants reluctant to get a credit card: credit card interest. The main type of interest charge that can come with credit cards is typically referred to as your purchase APR. Because you’re technically borrowing money each time you make a purchase with your card, your lender will charge you interest (your purchase APR) if you haven’t paid off your statement balance in full by the card’s payment due date. The interest you owe on your current balance compounds daily, which is why it’s so important to pay off your balance in full and on time. Don’t be confused by the “minimum payment” you may see on your billing statement — that tells you how much you’ll need to pay to avoid a late payment fee, but it won’t help you avoid interest. The only way to avoid interest is to pay off your statement balance each billing cycle. Breaking down credit card interest

Questions & Answers

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