Prime Interest Rate

05:14:53 AM Thursday, November 06, 2008

Prime Interest Rate Cut - Pay Less on Credit Cards

Good news for American borrowers - this Wednesday major U.S. banks began lowering their prime interest rates in tandem with the Fed fund rate reductions. The prime interest rate has dropped to a four-year low 4.0 percent from 4.50 percent. The prime rate is the most common underlying index for most credit cards and other loans. It means that banks and lending companies can lower interest rates to their best customers. JPMorgan Chase and Bank of America were the first to announce lending rate cuts, other banks are likely to follow this trend.

As the Federal Reserve and nation's leading banks lower lending rates, borrowers would like to know what this interest rate cut means to them. The Fed funds rate is the interest rate at which banks lend money to one another. Add three percent and you will get the prime rate, the interest rate at which banks and companies lend money to their most privileged customers. Low Fed interest rates make it easier to borrow funds for banks. And what about consumers? Can they also benefit from the prime rate reduction?

If you are a good payer who carries variable-rate cards, the chances are you could see your interest rates drop. As for holders of fixed-rate plastics, they are not likely to benefit much from the current prime interest rate cut. If you plan to apply for a new card, make sure your FICO score is in a good standing, as lenders reserve their best deals for solvent clients with high score ratings.

Borrowers adore low interest rates. It's not news that a vast majority of holders choose a new credit card on the strength of lending rates. Credit deals with a low APR are probably the most popular among consumers. Judging by statistics, most holders carry their account balance from month to month. That's why low APR applications are so popular. To pay down a balance on a high-rate card is a great challenge.

Those people who have excellent payment records could pay off their high-rate balances at much lower interest rates. The key is to shop around for good online deals on balance transfers. This could save you hundreds of dollars on interest. The average APR on balance transfers is 9.97%, it's the lowest rate among other credit deals. In view of the fact that best balance transfer applications generally come with 0% intro rates, the benefits for borrowers are obvious.

Still analysts advise to watch the fine print carefully. Credit providers increasingly cut spending limits, so that holders should keep a close eye on their monthly statements that contain important information about recent changes and moves. Those people, who are informed about these changes in advance, have better chances to manage their accounts responsibly.