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Ask the Experts

William Klinger

Professor of Business, Raritan Valley Community College

Does it ever make sense to get a credit card with a low regular APR? (vs. a 0% credit card or paying in full)

A low APR means you still pay interest. Borrowing money to buy things is not a way to build wealth. A good rule of thumb is to never borrow money for things that go down in value. Clothing, food, travel, and entertainment go down in value. Borrowing to pay for them reduces your net worth. In 1609, Shakespeare wrote, “neither a borrower nor a lender is” and that is still great advice.

Compared to loans, does any credit card really have a low-interest rate?

Personal loan rates vary according to the borrower’s credit rating and one credit card may offer an interest rate lower than another credit card. But for the same credit rating, a personal loan will have a lower APR than a credit card.

If rates are so low in general, why aren’t credit card interest rates lower?

There is more than one reason credit card interest rates are higher than personal loan rates. For one thing, credit card companies have higher costs. Credit card companies deal with many more transactions than a lending institution. Credit card companies have to handle every purchase a customer makes while lending institutions have only the monthly payment to handle. In addition, credit card companies have costs dealing with fraud and payment disputes that lending institutions do not have to deal with. Another factor is that credit card debt is relatively easy to obtain, and some consumers are willing to pay the higher rates because they do not consider the cost of that credit when obtaining a credit card.

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