Did you just acquire a new credit card but do not understand how or why you are charged? This will throw more light on how APR works for Credit Cards. Between rewards programs and greater financial flexibility, credit cards have a lot to offer. But if you don’t know how credit card APR works, you’ll have a hard time maximizing your card’s benefits.
The abbreviation APR simply means Annual Percentage Rate, which can also be called Nominal APR, applied on a cash loan, mortgage loan, or on a credit card (which we will be focusing on). APR usually applies when buying an item, a car, a house, or any other expensive possession. Since it is most likely that people will not be able to afford to pay the price in full at a time, sellers decide to divide the price into monthly payments is a more helpful option for buyers.
Generally, most credit cards come with an APR rate, which is typically expressed as a yearly rate known as the APR. Though APR is expressed as an annual rate, credit card companies use it to calculate the charges during your monthly statement period. There are several ways you can determine how much APR you pay, especially by paying attention to the details in your card’s fine print.
What you must know is that a credit card can either have a fixed or a variable APR. Fixed APR typically remain the same, but it can differ in certain cases, such as if your payment is more than 60 days due or when a lead-in offer expires. On the other hand, a variable APR usually changes with the prime rate, as published in the Wall Street Journal. Many variable interest rates start with the prime rate, then add a margin, the result afterward is your variable APR. If you wish to calculate how much APR you’re being charged, you first need to know your average daily balance, the number of days you have in your billing pattern and your specific monthly APR.
Note that first-time APR periods do not in any way remain forever. Also, if you get too fund of letting your payment due dates exceed 60 days, you will be prone to a penalty APR. This means that you’ll be charged higher rates for several months or even longer. An amazing fact is, if you make six total on-time payments, your credit card company will be subject to adjusting the rates for you. Truth be told, most Credit card companies do not charge you interest if you do not carry an unpaid rate from the previous month to a new month. Some may decide to even offer you a no-interest grace period up to about 25 days. That is, from the date you are expected to pay a bill to when you need to make the bill payment.
But the sad story is, you ultimately lose the grace period when you fail to pay in full by the due date of one month. The unpaid rate you carry over from that month will then be known as a Revolving Balance. And you can never have a Revolving balance if you pay the complete amount expected on your last two bills by the due date. It is important that you know this when you get or are about to get a new card. The APR you are charged when you open a new credit card account is a degree of your credit score and disposable income. If you have an excellent credit score, you will be charged a far lower APR, on average, compared to those geared toward people with limited credit.
For example, a Credit Card application may list an APR of 11% to 21%. If you fall in the category of strongest applicants you get rates on the low end of that spectrum, and vice versa. As you read earlier that paying in full your monthly charges constantly is the best way to avoid interest, obviously. But it is absolutely not the only one, there are a few other things you can do to ensure that finance charges won’t show up on your account.
This is an extra tip to help you understand more about how APR works. Interest gets assessed daily, so by waiting for a due date when dealing with a revolving balance will lead to a 30-day new finance charges that you’ll be responsible for. So if you intend for your interest rate to drop, you can pay the bill the exact day it becomes due. To add, if you use a 0% credit card, you have a chance to avoid APR charges on purchases or a balance transfer for a number of months after opening an account. You just have to make minimum monthly payments to keep your 0% lead in APR.
After learning how APR works, you should never forget to pay attention to the details added when a Credit Card company is providing your services. That is the only way to find out if you will enjoy low APR rates or No.