APR stands for Annual Percentage Rate. It is one of the most important numbers that you will find on a credit card application or statement. The reason it is important is because this number determines how much interest you will have to pay on any charges that you carry over on your credit card. It is also important for consumers to understand that even a single card can have more than one APR associated with it.
Here are some examples of how you might find various rates with the same card (or with multiple cards):
You will certainly find an APR for purchases. This is the standard rate that you will pay when you make ordinary purchases with the card and do not pay off the balance within the grace period that the company allows.
You will often find that there is a different APR for cash advances. In most cases, the charge for taking cash is higher than the charge for purchases. In some cases, the cash advance charge can be significantly higher and consumers should always check for this rate before they take cash.
Consumers should also realize that many credit card companies do not allow for a grace period with cash advances or balance transfers. This means that the APR for the cash advance will begin as soon as you take the money and you will have to pay this charge regardless of how quickly you pay back the cash amount taken out.
There can also be other types of APR's associated with your account. For example, there may be a penalty APR. A penalty APR can happen if you are late in your payments. Your credit card company will state the conditions that must be present in order for them to charge this higher rate. Be very careful about this because penalty rates can be very high at times.
You may also find that your credit card company uses what are known as tiered APR's. This is a system in which different rates are applied to different levels of outstanding balances. For example, a company may state that it charges 14% on balances between $1 up to $1000, and that it charges 15% on balances on balances above $1000. As you can see, under this method the more you charge on your card, the higher the percentage rate will be and the higher your monthly bill be as well.
There are also many companies that offer introductory APR deals. These are usually lower rates for new customers but they are temporary. Once the stated period of the introductory rate is over a higher rate usually takes effect. While introductory rates can be tempting, always check for the "regular" rate as well.
Consumers should understand that if a balance is carried over from one month to the next and so forth, even small differences in the APR can add up over the course of a year. Remember that APR stands for Annual Percentage Rate, the rate that will apply on a yearly basis. Use the lower rate cards and you will save money each month.
Credit card companies and banks depend on the fees and APR (annual percentage rate) they charge their cardholders for their profits. There are many types of credit cards and not all of them are right for all consumers. Credit cards are generally unsecured debt, or money the cardholder owes that has no backing collateral. The exceptions to this are the pre-paid credit card and secured credit card, both which can be used to repair damaged credit.
A secured credit card is backed by collateral, or something of value that the credit company can seize if the cardholder fails to pay their balance. The collateral is usually equal to or exceeds the available credit balance.
Consumers who are trying to build up their credit, whether they are just starting their credit history or trying to recover from poor credit history generally use these cards. Prepaid cards are becoming very popular with the parents of young college students as a way to keep them within a budget but still give them a bit of freedom in how they spend their allotments.
Consumers who try to avoid paying higher interest are using Balance Transfer credit cards more and more. Transferring a balance from a high interest credit card to one with lower interest can be a real money saver.
Some cards have an introductory rate of 0% APR which increases after a specific number of months. If you have a large balance on a card that has a 16% APR and transfer it to a 0% card, you'll save hundreds of dollars in interest. For this reason, balance transfer cards are doing a great business. The terms very widely between cards, so be sure that you know the conditions of each card.
Balance transfer cards can be very useful when purchasing large-ticket items like appliances on one credit card then transferring the balance to the 0% card.
Cash back credit cards reward the cardholder by returning 1% or sometimes more, of their purchases. Even mortgage companies have jumped on the cash back bandwagon, applying the 1% to the cardholder's mortgage principal.
Over time, and as long as you don't incur interest fees by carrying a balance from month to month, that 1% can be a significant contribution to paying down your mortgage. Some credit cards send the cardholder a check while others apply the rebates to the balance owed, if any.
There are other types of rewards for using credit cards, too. Consumers can get cards that award them mileage on airlines, points that are used to purchase merchandise, rewards of gasoline rebates or points toward lodging or entertainment. Some of these cards, however, charge a yearly fee to cover the costs of rewards so it pays to read the terms and conditions of such cards.
When used responsibly, credit cards can be a real asset. They are convenient, accepted nearly everywhere and make it easy to track expenses. In addition, unlike cash, if they are stolen your losses are minimal or none.
Both Peter Kenny & Joseph Kenny are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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