There are actually large numbers of credit cardholders who do regularly use their cards without any understanding of the different fees involved, let alone what the APR is and how it functions. The APR or annual percentage rate determines what cards many new users will choose as well. Of course, either way, a credit card's annual percentage rate will have an impact on what the costs associated with card use will be year after year. The APR's role in this may be overlooked or not fully realized by cardholders.

The first question for many cardholders is what exactly this annual percentage rate or APR is and it works. Essentially, this term describes the amount or rate of interest that you will end up paying for any carryover balances on your card's account. Moreover, the APR is also affected by the use of added features like cash advances and balance transfers.

A typical APR is calculated on a yearly basis. Each month's balance and the amount that is carried over from month to month through the year are factored into the APR will different significantly at times and make the amounts you pay differ as well.

Multiple APRs

As you become more aware of APR another fact quickly comes to your attention, particularly if you have not applied for a card yet but you've been looking around at various offers. It is not unusual to find cards that carry more than one APR. There about four distinct types of APRs. Each one is connected to specific finance and account situations. As a result, there will be clear differences between the ways each of these APRs is used by different credit card companies (if they even have all types in use on their cards).

Here is a short list of APRs that are implemented by many credit card providers:

Most cards have separate annual percentage rates for basic purchases, balance transfers, and cash advances. In most cases, you will have to pay more for the extra services each year than you would have to pay in interest for your normal charges.

The introductory APR is what it says it is. You actually pay this rate for a limited period established by the card issuer immediately after you are approved for your card. Later, after whatever grace or no-interest period concludes, your normal APR will go into effect.

Tiered APRs are a type of APR that operates at different levels based upon your current outstanding balance. A different rate is charged at one dollar amount versus another, making the rate variable over time.

Your card may include an adjustable APR called a penalty APR. This type of APR is activated when you, as the cardholder, habitually make late payments, or fail to adhere to some other terms outlined in your credit card policy.

The Difference Between 'Fixed' and 'Variable'

Another distinction made between one APR and another involves whether it is a "fixed" or "variable" APR. With the former, you will find that the rate remains at a generally constant level. The only exception to this is when the credit card issuer makes changes to your card's APR policy. Of course, these changes are not made without written notification to the cardholder. Variable APRs, by definition, will vary. The rate will change based upon other factors such as the prime rate or fluctuations in Treasury bill interest rates, etc.

Not knowing that much about your APR is nothing to be ashamed of, but you can seriously benefit from having at least a working knowledge of your APR including what type you have. With this information, you will be better informed. Also, you will be able to make better decisions about your future card use - and save yourself some money in the process!