How the APR, or Annual Percentage Rate Works with Credit Cards
One of the most important factors when
deciding which credit card to choose is a comparison
of the APR, or Annual Percentage Rate. This is the
cost of credit, the actual interest rate, determined
on an annual basis and expressed as a yearly rate.
By comparing the APR of credit cards, you can determine
which card will cost you most, barring fees such as
late payment charges, ATM fees, or cash advance charges.
The APR offers a standardized way to compare yearly
interest rates, whether the interest is computed on
a daily, monthly, or yearly basis. Under the federal
Truth in Lending Act, credit card companies must provide
you with information about the APR. If you understand
the APR, you have a better chance of making your money
work for you. When it comes to calculating the APR,
you will have to do a little math, but it is well
worth the effort to know exactly where you stand,
financially speaking.
If you look at your credit card statement,
you'll find that the finance charge, interest, is expressed
both as a periodic rate and an annual percentage rate.
If you divide the annual percentage rate by 12, you
will come up with the monthly periodic rate. It is
important to recognize that when you sign up for a
credit card, you are signing a contract. If you understand
how the interest on your account is calculated, you
are much more likely to use your credit card wisely.
There are other things you need to know about the
APR. Your card may, in fact, carry different APRs
for various transactions. For instance, regular purchases
might be subject to an APR of 16 percent, while cash
advances carry an APR of 19 percent. Also, if your
card has a variable rate, it can be altered throughout
the year. You should consider reading your credit
card agreement and talking to a customer service representative
to find out more information about your cards APR.
You should also consider selecting a card with an
APR that is appropriate to your needs.
For example, if you are able to pay
your balance in full at the end of the month, select
a card with a low annual fee. In such a situation,
you can afford a card with a higher APR, since you
will not be carrying a balance. However, if you will
not be able to pay off your balance at the end of
the month, select a card with a lower APR. You can
also use the APR to your own personal advantage. If
you carry a balance on your credit card, pay more
each month. That way, even if you face a high APR,
you can minimize the interest you pay on the card.
Its important to recognize that, if you only pay the
minimum balance each month, you will have to pay more
interest. It will also take you longer to pay off
your debt.
Ron Goodpaster is the Senior Staff writer
for http://www
.cheapcreditoffers.com. He has been writing various
articles on consumer credit for HTTP://http://www.cheapcreditoffers.com since May 2005.
