What’s Different About a Variable Interest Rate?
A variable interest rate is tied to another interest rate, usually one that moves with the economy. The variable interest rate is a certain number of percentage points above the index rate. (The difference between the two rates is called a margin.) For example, the variable interest rate on your credit card might be prime + 13.79%. In that case, the margin, 13.79%, is added to whatever the prime rate is at the time to come up with your interest rate. Prime is currently 3.25%, making your interest rate 17.04%.
Your variable interest rate will go up and down as the underlying rate goes up and down. Credit card issuers don’t have to send you an advance notice when your variable interest rate goes up because the underlying rate has gone up, so you won’t know if your interest rate has changed unless you pay attention to your credit card billing statement. If your credit card issuer increases the margin portion of your variable interest rate, the fixed interest rate increase rules apply. Your card issuer will be required to notify you in advance of the chance, giving you the chance to opt-out
