What is Credit Card APR?

One of the key components of any credit card offer is its annual percentage rate (APR). The APR is the amount of interest you’ll pay on your carried balance in a given year. If this sounds complicated to you, don’t worry. It’s really very simple. To understand APRs, all you have to do is familiarize yourself with some simple terminology used by credit card companies and do some basic math.

Calculating credit card APRs

Credit card companies charge an annual interest rate to any balance you carry on your account. Introductory APRs may be set at zero percent for a specific time period, then revert to the standard APR you will receive. Generally, standard APRs may be as low as three percent or as high as 30 percent depending on the type of card you quality for and the credit card company you obtain your card from.

To calculate what the daily interest rate will be on your credit card, just divide the APR by 365 (the number of days per year). However, that calculation is only correct if you pay off your credit balance every month. If your carry a credit balance for purchases, cash advances, or balance transfers, the daily cost of your credit will compound (see the terms and conditions section of your account information to see how your APR is compounded). Add any late fees, over-the-limit fees, or other charges to your credit balance, and you can see how the interest assessed to your account can add up to more than just an annual interest rate calculation.

Shop around for the best offer

In an ideal scenario, the APR on your credit card is low and remains fixed throughout the life of your card. However, there are several factors that influence the APR offered to you. Some of these include:

• Obtaining a card with a variable interest rate which can increase over time
• Having less than perfect credit
• Making payments after the due date which may mean a permanent increase to your APR
• Exceeding your credit limit; another occurrence which can incur a permanent APR increase

If you’re planning to make purchases with your credit card and carrying a balance, getting a low APR is vital to your financial health. Be sure to compare several credit card offers and read the terms and conditions section of the application which specifies what the APRs will be for the card and how they are calculated and compounded. If you still have questions about your potential APR after reviewing this information, contact the lender for more details.