Before you think about owning a credit card, one of the basic concepts that you have to understand is the APR, or Annual Percentage Rate. Simply put, this is the amount of interest that you will be paying in a year whenever you miss a payment deadline, carry over a balance, transfer a balance from one credit card to another, and avail of your card’s cash advance features.
Because APR determines the actual costs that you will have to pay for owning and using a credit card, many companies are offering low introductory rates, as low as zero percent in a year, to lure in new customers. However, once this period expires, you have to keep an eye on what the new APR is. It is therefore wise that you always know what APR applies to your card. Otherwise, a small difference in the APR can actually mean a big difference in how much you pay over the next year.
Fixed and Variable APR
Some credit cards have fixed APR, which means that the APR that the company will charge you do not change, or they do but only after a period of time. And even before they increase their APRs, they have to inform you first about it.
On the other hand, companies that have variable APR means that the card’s APR changes from time to time. This is because the APR is associated with other rates, like Treasury bill rates, for example. So if the other rate changes, the APR of your card may change as well. To be sure about whether you card has fixed or variable APR, check on the terms and conditions of your card.
Kinds of APRs
Moreover, there are many APRs that your credit cards might have, depending on the transactions. There could be an APR for the purchases you make, a different one for cash advances, and another one for balance transfers. If this is the case, you should know the APR for each of the transactions.
Also, some credit cards have tiered APRs, which means that the credit card company will charge you with different interest rates depending on the amount of the transaction you made, or the total amount of your outstanding balance. For example, for transactions less than $100, the APR can be at 14%. For transactions of $100 - $1000, the APR will be 15%. And this just goes higher as you go up the ladder.
There’s also one called the penalty APR, also commonly known as the late payment fee. However, this will only be applied whenever you miss out on your payment deadlines. So the longer you delay the payment, the higher you will have to pay.
As mentioned earlier, introductory rates may also be given by credit card companies. These APRs are usually the lowest as they are used to attract new customers to avail of a new application. |
