Credit Interest Rates 101

Using credit to pay for tire and auto repair services can provide peace of mind and help you keep your car in good condition, but it’s important to take interest rates into consideration when dealing with any type of credit account. Having a solid credit card repayment plan in place helps minimize – and can even eliminate - the accruement of additional costs, fees, and interest added to your balance. Here’s what you should know about credit card interest rates and how to factor them into your financial decisions.

What is interest rate?

An interest rate on a credit card is the cost of borrowing money from the credit card issuer, expressed as a percentage. This rate determines how much interest you will be charged on any outstanding balance that you carry beyond the due date.

Credit card interest rates can vary widely depending on the cardholder's credit history, the type of card, and the issuer's policies. The interest is typically calculated on a daily basis and is often referred to as the Annual Percentage Rate (APR). If you do not pay off your balance in full by the due date, the remaining balance will accrue interest based on the APR.

All CFNA Credit Card have their balance due once a month, but some cards come with a promotional period that lets you defer interest for the first six months of purchases. Designed to give you more flexibility, cardholders who complete paying off their balance within the promotional time won’t accrue interest on purchases.

Why does interest rate exist?

Wondering why you can’t borrow money without worrying about accumulating more debt? Interest on credit is necessary for a few reasons:

• Compensation for lenders: When lenders provide loans or credit, they take on the risk that the borrower may not repay the loan. Interest is compensation for this risk.
• Inflation: Over time, the value of money can decrease due to inflation. Interest helps lenders maintain the purchasing power of the money they lend, ensuring that they receive back a value that is equivalent to or greater than what they originally lent.
• Opportunity cost: When lenders give out loans or credit, they forego the opportunity to use that money for other investments. Interest compensates them for this opportunity cost.
• Economic growth: Interest rates influence borrowing and spending behavior in the economy. Lower interest rates can stimulate borrowing and investment, leading to economic growth, while higher rates can help control inflation.

Understanding how interest works is key to using credit to your advantage and staying on top of both urgent and routine vehicle maintenance. Some CFNA Credit Card programs offer not only rewards for using credit but also the benefit of deferred interest and flexible repayment options that won’t cost you more money in the long term.