The Best Credit Card

The Dreaded Credit Card APR: What Exactly is It?

If you’re one of those types who can afford to simply pay whatever’s indicated in their credit card’s billing statement, then this article is not for you. If you want to get the lowdown on that little thing called APR on the bill, then keep reading.

What is APR? APR stands for Annual Percentage Rate. It pertains to an annualized interest rate placed on your purchases. Usually, the APR applies to your outstanding balance that goes over the allotted grace period. The amount you are charged for the remaining due—the finance charge—depends on the APR. Higher APR also translates to higher finance charge, so make sure you pay the balance on time!

There are more detailed terms relating to the credit card APR. Nominal APR pertains to the simple interest rate computed for one year. When you say effective APR, or EAR for short, that means the fee plus the compound interest rate, computed across one year. EAR is known as the “mathematically-true interest rate.” That is probably because it takes all sorts of fees involved in the account into consideration.

You don’t have be too scared of the finance charge, as long as you pay the balance before the allotted grace period ends. When you settle the full balance before the end of this grace period, a finance charge won’t be applied to your balance.

APR can also depend on your type of credit card spending, whether you made a purches, got a cash advance, or made a balance transfer. For each, credit cards usually have different APRs. It would be wise to be informed of the APR implemented on your credit card for each kind of purchase.

Hopefully, our discussion has helped shed some light on the term Annual Percentage Rate. The next time you see “APR” on your billing statement, you’ll have an idea what it means and what it pertains to. With a knowledge of how APR works and how your spending is affected by it, you can now plan and manage your spending more wisely.