What Does APR Mean For Credit Cards

What does APR mean for credit cards is a question most cardholders won't really bother to ask.
 

   
However it is very important for consumers to know the answer to the question, what does APR mean for credit cards? Knowing the answer/s to the question, "What does APR mean for credit cards?," will help you in making the right decision.

APR or Annual Percentage Rate is a yearly interest rate that is computed by credit card companies which includes all the fees and expenses due to the consumer to obtain and use a credit card. More simply, it is the amount that the credit cardholder has to pay in interest charges per year.

Credit card companies primarily generate its revenues from interest charges and most of them apply different methods of charging interest. APR varies from 3% to 30% depending on the nature of the transaction and the prevailing market prime rates.

It affects how much money is effectively paid to the credit card company when the cardholder does not pay his monthly balance in full on or before the card due date. By not paying the full amount, the cardholder is charged interest on top of any other interest charges that are not paid in the previous month, including any other penalties and fees at the time of interest calculation.

What does APR mean?

APR is an important number to understand when it comes to credit card usage. One credit card may have several APRs that apply to different types of transactions.

APR for Purchases is the interest rate that is paid, on an annual basis if the balances are carried over from one billing cycle to the next. There may be multiple rates involved here, for example, introductory rates when the card is first issued to cardholder. Then the rate that applies changes after the introductory rate period has expired. The rates depend on the cardholder's credit worthiness which depends on his income, debt, credit score, and history of payments.

APR for Balance Transfers is the interest rate that is paid, on an annual basis, for balances that are transferred from another card. For this type of transaction, usually APR is 0% but it will change after the introductory rate period has expired. A Balance transfer fee is also imposed by the company. If a cardholder is not able to fully pay the balance at the end of the introductory rate, he may be charged a higher APR thereafter which effectively brings up the cost of paying the balance.

APR for Cash advances is the interest rate that is paid for cash that is withdrawn by the cardholder from his credit card account. Cash advance fees apply in addition to the interest charge it imposes beginning on the first day of the transaction.

Penalty APR is usually an increased interest rate that is imposed by the credit card company when the cardholder is making late payments, goes over the credit card limit or sends a bounced payment. Any of these situations may effectively increase the interest charges of a cardholder for a certain period of time.

APR is calculated based on the effective interest rate for one year taking into account that the interest is compounded monthly. The APR on a credit card may vary depending on the credit risk or credit history of the cardholder. It is common for credit card companies to charge a lower APR based on the cardholder's good credit rating however, they usually have a standard APR rate which may be found on the fine print of the credit card agreement. Rates vary from 3 percent to a high of 30 percent. Some credit card companies charge a fixed interest rate (non-variable) which means that rates are more stable for a certain period of time until market rates dictate necessary changes. However, the credit company is required to notify cardholder prior to any changes taking effect.

Other companies charge variable interest rates which change based on the prevailing prime rates plus 3 percent.

For your own protection, you should arm yourself with information on how to answer the ever important question, "What does APR mean for credit cards?" Getting answers to the question, "what does APR mean for credit cards?"may take some time but in the end would be worth it.


  

Source: Credit Cards For People With Bad Credit Rating


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