What is APR?
The annual percentage rate (APR) is the yearly rate of interest that is associated with your credit card. Usually, credit cards have high APRs which may range from 12% to 30%. Spending some extra time searching for a card with a good rate is worth it. The APR is also used interchangeably with the term “interest rate”.
There are countless credit cards available today and they all have a different set of benefits, terms and condition. This also means that they have different interest rates associated with them. Your APR might be different than of those around you as its value fluctuates from time to time depending upon certain factors. Paying your credit card bill in full every month guarantees that you will build a strong credit profile and qualify for cards that have lower APR values.
Where to Find APR?
Most credit card holders will be able to find their APR information in their credit card agreement document. It is always clearly shown in the form of a comparison chart on the agreement so you don’t have to worry about reading the fine print. You can also find it on the credit card issuer’s website.
How is APR Calculated?
In general, you are charged interest on purchases, cash advances and balance transfers with effect from the transaction date. Some credit card issuers don’t charge an interest rate on purchases if you manage to pay your bill in full at the end of the month.
You can calculate the APR being charged on your credit card through this simple process. First, you have to dig up your most recent statement and determine the current balance or the amount you owe. For instance, let’s assume that the amount you owe (including the APR) is $1,000. Next, find out how much the finance charges are against your credit card. Let’s assume this value to be $20 for now. Divide your finance charges ($20) by the amount you owe ($1,000).
20/1000 = 0.02
Then, multiply the answer with 100 to make it a percent. The answer is how much interest you are charged on a monthly basis.
0.02 * 100 = 2%
Multiply the interest charged on a monthly basis by12 to get the value of your annual interest rate (APR).
2% * 12 = 24%
So, if you owe $1,000 and you have $20 finance charges, your APR is 24% (which is fairly high).
Multiple APRs on One Card
One credit card account can have multiple APRs on it. This is often the case when your credit card issuer charges APR on purchases, cash advances and balance transfers separately. Promotional offers may advertise a lower APR on certain transactions for a given period of time. At the end of the promotional period, your “low APR” will be adjusted to a much higher value. However, if you’re credit savvy you can use any promotional offer to your advantage.