Understanding Credit Card APRs

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Credit card companies apply an APR (annual percentage rate) towards credit cards they issue to customers. In general, the credit card APR is the cost of using the lending institutions’ money. Understanding how credit card APRs work can be confusing because APRs vary from person to person, credit card to credit card, and the method to calculate the finance charge may vary from issuer to issuer. Simply by looking at all the differences in the APRs choosing the right credit card is critical to getting the best deal possible.

The first thing to remember when understanding credit card APRs is to know how they relate to your credit history. If you have a positive credit history your APR will be lower than if you have poor credit.

When shopping credit card offers you will most likely come across offers that have several APRs. Many credit cards have different APR’s for purchases, balance transfers, and cash advances. The credit card APR for purchases is typically the most reasonable, however the APR for cash advances can be down right outrageous at 20% or more of the cash advance. Use caution when using your credit card for cash advances. Avoid it at all costs if you can.

For those with good credit history it is likely you will want to apply for a credit card that has a 0% APR introductory rate. The longer the introductory rate the better. This means that until a specified time when your introductory rates expires you end up not having to incur or pay finance charges on the balance of your credit card. When you carry a balance on your credit card from month-to-month, a small difference in the credit card APR can make a huge difference it the amount of interest you pay over a year’s time.

Some credit cards have fixed rates associated with them while others have variable rates. For the most part a fixed APR doesn’t change unless you are late on a payment or you have violated the contract in some other way. Typically if the credit card issuer is going to change the rate they need to notify you before doing so.

Variable APR rates are the opposite of fixed rates. They may change from time to time. The interest rate is most likely tied to another interest rate, such as the prime rate. If the prime rate changes your credit card rate may change as well. Read the credit card agreement carefully for information on whether the credit card you are applying for has a fixed or variable APR.

When you apply online for a credit card you should shop and compare credit card offers. You can save money in the long run by knowing exactly what you are receiving from the credit card issuer.

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