Before you choose and apply for a credit card, you should ask the issuer “What is the APR on this credit card?” This is because the APR on a credit card would determine if you would be able to cope with the payments on the card. In this article, you would be educated on what APR is, how to differentiate between a good and bad APR and lots more. So, keep on reading.
Credit Cards What is APR
As you may know, a credit card allows holders to make purchases, and carry out other transactions with the intention of paying the bills at a later date. This usually comes with a line of credit and the cardholder is expected to pay back the loan on the card on the due date. The APR comes in when this payment is not made on time. So “what is APR?” You would discover this as you read on.
APR Credit Cards Explained
This is a term that is associated with loans and credit cards but for the sake of this article, we would be focusing on APR n credit cards. Annual Percentage Rate (APR) is simply the agreed interest on a credit card and it is calculated annually. Simply put, APR is the amount charged for borrowing funds from your credit card and it only applies when you don’t pay your balance on the due date. There are so many factors that could determine the APR on your credit card. This includes your credit score, U.S. Prime Rate, and other factors.
Types of APR
Credit card issuers offer credit cards with different types of APR. this is to meet the needs of customers. The Types of APR on credit cards include:
- Introductory APR: Also known as Promotional APR, this is the type of APR offered by credit card issuers as a form of introduction but it last only for a limited time. The introductory APR is usually known to be lower than the normal and the APR would return to normal after the introductory period.
- Purchase APR: This type of APR is the interest charged on new purchases made. The card issuer assigns this APR to everyday purchases made with your card in-store, online, or over the phone.
- Cash Advance APR: This APR is higher than the Purchase APR. It allows you to take out a cash advance from your card and there is no grace period as interest is incurred immediately.
- Penalty APR: This APR applies when you pay the bills on your credit card late. The interest is usually higher than the regular APR on the card.
These are the types of APR. The most common types of APR include the Cash advance and Penalty APRs. Other factors could attract a Penalty APR apart from making late payments. They include exceeding the credit limit, unauthorized use of the card, and not making the minimum monthly payments.
Does APR Matter if you Pay on Time?
Although every credit card company and lender set an Annual Percentage Rate (APR) on their credit cards, most cardholders can escape paying this bill. If you pay your bills on time and in full, you don’t have to worry about the Annual Percentage Rate (APR). When you pay the bill on your card in full every month, your issuer won’t have an outstanding balance to charge interest on. One sure way to avoid APRs is to pay your bills on time fully. Your credit card issuer is the one who determines the interest you owe and this is based on the average of your daily balance. Carrying your bill from month to month would affect you and your credit score. Even if you cannot pay the balance in full, you can make minimum payments to lower your average daily balance.
How to Lower APR on a Credit Card
Having a high Annual Percentage Rate (APR) can be frustrating. This is because the bills would keep pilling up and you may not even be able to meet up with the minimum payments on the card on the due date. Below are some tips that would help you power your APR:
- Apply for a balance transfer card with a 0% introductory rate.
- Pay your bills on time and keep your balances low as this would improve your credit score and credit worthiness.
- The last resort is to request your credit card issuer to lower the interest rate. This has helped some credit cardholders as their requests were being granted.
These are some tips to help you lower your APR. before you apply for a 0% introductory card, you should make sure you understand the rules and deadlines associated with the card.
Average APR for Credit Cards
What is the average APR for credit cards? The average credit card interest rate is 18.32% for new offers and 14.56% for existing accounts. These values are estimated by taking a review of over a hundred credit cards. If the APR on your credit card is close to the average value, it is unwise you carry over your balance from month to month.
Frequently Asked Questions
This section of the article would address some important questions related to the topic. It is important you read through as you would be getting more information about the Annual Percentage Rate (APR) on credit cards.
What is a Good APR for a Credit Card?
A good APR for a credit card is anything below the average APR for credit cards. Simply put, any credit card with an APR lower than 18.32% for new offers and 14.56% for existing accounts can be considered a card with a good APR.
What Determines the APR on a Credit Card?
Credit card issuers set the Average Percentage Rates (APR) differently. This is because APRs are determined by the issuer based on the credit score, credit worthiness, income, credit history, and debt owed by the applicant. This is why certain information is required of you before you apply for the card. The higher your creditworthiness the lower the APR.
How do I Avoid Interest in my Credit Card?
You need to avoid APRs so you don’t get into more debt. To achieve this, you should pay your balance in full every month. Also, you should opt for an Introductory 0% APR credit card as there are no interests on balance transfers. However, you should pay the balance before the intro period ends.
Who Sets APR?
The Annual Percentage Rate (APR) is determined by the Federal Open Market Committee (FOMC) in the United States. This includes the Federal Reserve Board and the Federal Reserve Bank, presidents. The decision made by this central board enables lenders and credit card issuers set their own APRs.
What is 24% APR on a Credit Card?
A 24% APR on a credit card means that the interest rate charged on the card is 24% for twelve months. This breaks down to 2% interest per month. Sometimes, the Annual Percentage Rate (APR) can be broken down into a daily Periodic rate. This is done by dividing the APR by 365 days. This would help you determine the DPR on your credit card.
What is a Decent APR for a Credit Card?
Any APR that falls below 14% which is the average can be considered decent for a credit card. The best APR for credit cards however is 0%. Before you apply for a credit card, it is very important you consider the APR but if you intend on paying the bills when due, you have nothing to worry about.
Where Can I Find my Credit Card’s APR?
Most times, the APR of your credit card is stated under the cardmember agreement. You can also find this Interest rate when you log in to your account on the card issuers portal online or with the mobile app (if any). Also, most card issuers include the APR on the card’s monthly billing statement.
Check This Out:
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