Understanding Credit Card APR Features
APR stands for "Annual Percentage Rate". It is the amount of money that you will pay, expressed as a percentage, for the privilege of charging purchases and carrying a balance.
Make sure you look at the rate of interest each month, instead of just relying on the APR. The APR is basically an estimate of the total cost of borrowing – it is the monthly interest plus the various charges that will show you exactly how much you would pay.
Since we all know that there are virtually as many different credit card companies as there are stars in the sky, finding the one that works best for you and your needs can be a bit tricky.
All credit card offers will come complete with a list of features that are supposedly exclusive to that card. In actuality, most of the cards offer about the same set of features with a slight variation. All will mention the APR and knowing what and how that works is vital.
The All Important APR
This is a biggie. The APR can drastically change your ability to pay off your card, particularly if you carry a balance. The APR attached to the credit card can vary not just from card to card but also from how and what you purchase.
If you are looking to obtain a cash advance on your card, be aware that the APR here will usually be the highest. The APR for purchases is usually right on it's tail, though. For example, for a cash advance of $200.00 the APR may be as high as 23%.
This is a whopping amount of interest to pay on a relatively small amount of money. For purchases, however, the APR may be more like 19%. Still pretty high for the convenience of not using cash. That's why it's usually best to use credit cards for emergencies or for purchases that you intend to pay for in full at the end of the month.
APR's can also vary according to how much of a balance you carry on your card. These are called tired APR's because the APR depends upon which balance tier you are at on any given month.
For example, a balance of $0-$2,000 may be subject to an APR of 14% while a balance of more than $2,000 has an interest rate of 18%. Again, it pays to keep your balance lower on these types of cards.
Then there's the penalty APR. This happens when you make late payments regularly (meaning more than once in credit card lingo). Your APR can be raised and will affect your entire balance. Moral: Make your payments on time.
The most popular marketing tool used today by the credit card companies is the introductory APR. This is a significantly lower interest rate on transferred balances and purchases made during the said introductory period. This is beneficial if you carry a high balance on another card at a high APR and can transfer your balance, giving you the opportunity to put more of a dent in that balance during the intro period.
One thing to look out for, though, is the future APR (or delayed APR) that kicks in when the lower rate expires. This rate can be significantly higher than the intro rate they are offering.
So remember, pay attention to the APR and know what rate will come into play for the card you are looking at. Make your choice wisely and be cautious!
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