Millions of people have credit card rates that fluctuate, so just how do variable rates work? And more importantly, why do they go up…but never seem to go down?
Variable rates are interest rates that are tied to a rate index, usually the “prime rate.” As the government raises or lowers its rate, the variable rate changes as well. And good news: Under new regulations issued in January on variable rate credit cards, interest rates must be allowed to fall, not just rise. Now companies can raise rates on existing balances only when tied to an index and only when allowed to rise and fall with that index. Until then, lenders had used “floors” that allowed the rate to rise, but not to fall beneath a certain minimum rate.
What scares me are the unintended consequences with rates being able to go down, but not up…. That tells me the banks are going to figure out other ways to get what they want. That is why we need to watch closely.
The rules for how do variable rates work have just changed so that borrowers paying variable rates will enjoy a fall when the prime rate goes down.
