All you need to know about Credit Card APR: currently, the economic situation is becoming difficult and everyone needs financial help were. That is where banks and card issuers come in. The institutions have come up with a way of helping people go on with their normal lives by giving them loans in form of credit cards with the aim of earning an interest.
For any individual, it is always convenient to have a relationship with a financial institution. This institution helps when you want financial boosts and help along the way to our success. That boost comes in different ways and credit cards are one of them.
I know you are wondering what APR is. Before I give you an insight of what it is all about, let me tell you about credit cards.
What Is a Credit Card
This is a card issued by a bank or a card issuer to enable you to purchase goods on credit. You walk into your financial institution or any card issuer and enter into an agreement on how you are going to pay the money and they let you know their terms and conditions before they issue you with one. The issuer or the bank evaluates your financial history and credit worthiness and issue you with the appropriate card to use.
Some of the advantages of using a credit card are;
- It is convenient in that you can use it anywhere to make purchases.
- The cards have offers like get cash back opportunities.
- You are rewarded
- You get a grace period of paying the money you borrow.
- It is safe since you don’t have to walk with cash everywhere.
Different banks and card issuers have a different kind of cards depending on what they have to offer and their customer’s needs. These cards include;
- Standard credit cards where there is no deposit and credit limit are decided by the credit card.
- Premium credit cards. These are gold and platinum. They have more to offer and have a higher credit limit.
- Secured credit card. The card is issued to people who have a bad history with credit cards. It needs a deposit before using and the limit depends on money deposited. It tends to have a high APR and interest rate too.
- Prepaid credit cards. This works by the owner loading money into the bank. This card is not tied to any bank account.
- Specialty credit cards. This is a special type of card offered through affiliate companies and partnership with major brands.
Now that we know what a credit card is, let’s know what APR is.
What is Credit Card APR
Credit card APR is an abbreviation for a credit card annual periodic rates. This is simply the annual interest you pay to your bank or card issuer for borrowing money from them. Banks and card companies earn money through these rates It is stated as a yearly rate you must pay for the money you got from them.
Banks and card issuers use this as one of the many ways of gaining profit from their customers. This is a proven way for a customer to gain trust from the institution they are banking with. Before you get a card, you must have a good financial relationship with the bank. Your credit worthiness should impress the bank for you to get a good deal.
Depending on the credit card you want to have, the credit card APR can be;
Fixed APR– This rate is not determined by any set rate. It tends to be more stable and most favorable. That, however, may change depending on the customer usage of the card and the economic situation.
A variable APR– This APR is set depending on certain variable including the margin, index, and the prime rate. That tends to change from time to time. The good thing about this is that it can go low in a good way or high in a bad way.
APR is charged by the issuer depending on the type and the amount involved. These are the different types of APR available for you to have;
Purchase APR- This is the kind of annual interest rate you pay for all the purchases you make using your credit card. It tends to be lower than other types and this is the one normally used while advertising a certain credit card.
1. Balance transfer APR– Charges made to you when you put your old balance to the new balance. Normally, you can be charged both the purchase APR and the balance transfer APR.
2. Cash advance APR– It is the annual interest rate you pay when you get cash from your bank [ through the ATM]. Interest is usually high and should be avoided if possible.
3. Discounted APR–It is a discounted annual interest rate used by banks and card institutions when advertising a certain card. Caution should be excised when taking such an offer because you never know what is behind the offer.
4. Penalty APR – Annual interest rate you will pay when you fail to pay speculated amount within the given grace period. This is a direction you don’t want to go. It can be frustrating and discouraging when you find yourself in such a situation. To avoid being in such a situation, you are supposed to pay the whole amount before the deadline.
How Do You Know a Good Apr for a Credit Card
It is business as usual for your bank or card provider. Rarely will you find either of them telling you all you need to know before they assign you a card. Here is how you know this is a good APR for you.
1. Always go through the terms and conditions
This is given to a customer when you go to apply for a card to make sure you are not dubbed into a bad deal. Go through the instructions and understand the type of card you are going to receive and the type of rate it accumulates.
2. It is good to know your creditworthiness
Checking your creditworthiness enable you to acquire a credit card that you can afford. This is readily available from your financial institution. Have time, sit down with them and let them tell you how much you are worth. With this, you can make a more informed decision on how much you can afford to borrow and pay without straining.
3. Identify the kind of card you want
This is to aid you in understanding what kind of APR you are going to pay. For example, reward and restore cards have a high-interest rate. Knowing the kind of card, you want makes your banker or card company know the kind of information to give you.
4. Strive to make your score better
Remember, the better your credit score is the lower your APR will be.
5. Go for the fixed APR
These APR rates have minimal changes, unlike the variable one. Do note that in variable APR, when the prime rate [the set standard rate charged to bank customers on a loan] is high, the APR will rise. Take account of all this when shopping for a card.
6. A good card should be 0% APR
However, this is nearly impossible. What you should do is keep your credit score high then shop for the credit card with a rate of a single digit.
How does credit APR really work
- When applying for a credit card, it is vital to gather all the information that you can find on the card. It is important to note that the annual rate does not apply immediately you make a purchase and can be avoided if you pay within the grace period. This is the most practical way and a sure trick of avoiding paying the rate.
- You should know that a bank assigns an annual rate depending on your credit score. It is good to have a good relationship with your bank and uphold a high credit score. This makes your bank reduce the annual rate because you have shown you can be trusted to pay a loan.
- Most cards have a variable annual interest rate. That means the APR is affected by the prime rate of the bank. If the prime rate of the bank goes up, your annual interest rate goes up and vice versa. It is wise to always remember that when getting a card.
- Interest charges apply if you start a billing cycle with an outstanding balance. Pay and no interest rate will be billed to
- Now, even if you pay, an interest rate will still be charged for the cash that you carry throughout the billing cycle.
- To make calculations, your bank takes the monthly interest rate and multiply by the average daily balance that you have. That means when you start a cycle with a zero amount and end with a zero amount, no interest will be billed to
- Now that we know how APR works, how about we look at some of 0% APR credit cards available in the market.
Best 0% APR Credit Cards Available in the Market
This is the best card you can ever have. People with a good credit score and have a good relationship with their creditors always have an advantage of having this kind of credit cards. There is no interest on the purchase on these cards for several months, you only pay the minimum amount required by the creditor each month, this is convenient, right?
There are a couple of these 0% APR credit cards and they include;
- Chase freedom unlimited.
- Discover it cash back credit card.
- Blue cash everyday cash from America express.
- Bank of America cash reward credit card.
- Capital one venture one reward credit card.
- Us visa platinum card.
- Citi Simplicity credit card.
- Bank of America cash reward credit card for students.
- HSBC gold master card credit card.
Low APR Credit Cards
They are also convenient. The rate might be there, but it is convenient and affordable. These cards have a long introductory period and some with free monthly credit score. These cards include;
- Chase Slate. They have a long introducing APR period. These are convenient because they don’t have any penalty charged and have a monthly credit score all for free.
- Pen fed promise visa card. This card has no fee at all.
- Discover it. This card has a cash back program.
- Discover it chrome. It has a 0% introductory APR period and very customer friendly.
- Barclaycard ring master card. It is known as a first social card. This is because it is used by a community that shares a common financial forum.
- Siti simplicity card. This card has no late or penalty APR which makes it one of the best. It also has a long APR introductory period.
- BBVA compass visa signature. Has no annual fee and has rewards.
How is APR calculated?
After you have found the right card for you, it is always good for you to know how to calculate your APR. in a real sense, it looks complicated when you think about how to calculate the rate but, it’s not. It is calculated with these three simple steps.
- Find the daily periodic rate. This is done by dividing the annual periodic rate by the no of days in one year.
- Find your average daily balance that is subjected to financial changes. This is provided by your bank.
- Multiply them all.
Total credit card interest for a month= balance x daily periodic rate x no. of days in a billing cycle.
Sometimes the figures are not clear. It does not mean you should not have a clue on how it is done. Look for ways to calculate or use online calculators that can help you calculate this to be aware of what you are expected to pay.
What increases your credit card APR
Sometimes while reading your bills, you may have noticed your APR bill has risen unknowingly. Although this is against the credit card act 2009, creditors always have a way of increasing your rates a bit high than you might expect. These are some of the reasons to why they do it;
End of a promotion rate
So, you took up a credit card with an offer of no fee payment for a certain period and the period ends. You must start paying the expected interest rate immediately. This kind of rates usually finds the card bearer off gourd. A good creditor always alerts the card owner of the changes that are about to happen in the billing.
End of the grace period
Though they are not supposed to, most banks have a grace period in which card bearers are supposed to pay the loan. When this period is over, interest starts to accumulate, and this reflects the rate you are supposed to pay.
Drop on credit score
Like mentioned earlier, it is important to maintain a high credit score. That goes a long way in ensuring that your APR is not increased. Remember when you have a low credit score and bad financial history, banks tend to slap you with a high-interest rate.
The rise in the prime rate
The prime rate is the amount a bank charges its customer when they borrow money from them. It is regulated by the federal government and the banks enforce it to the customers. In variable APR, the prime rate tends to affect your APR a lot. When prime rate goes up, the APR rates tend to go up too. Also, when the rates go down, the APR goes down too.
You own a cad for 1 year
The credit card acts 2009 states that an institution cannot raise your rates without 45 days warning of doing so. It also states that for a card of interest to be increased, it must have been a year old. So, if you own a credit card for more than a year, increase the interest rate may happen.
In case a bank incurs a loss.
With the increase of financial and economic hardship, people tend to default in paying their credit card debts. That comes as a blow to the bank as they incur losses. They result in an increase in credit card rates to recover the loss. This result in you having to pay a high rate than expected.
Having a credit card is one of the most convenient and safe move to make. Card owners have the freedom of making payments and access funds whenever they are. Credit cards come with its own terms and conditions including the way the bank will get back money borrowed together with interest which is known as annual periodic rates. The rate varies from card to card. It is up to the card owner to shop and inquire about the right card to have and what charges he/she will incur when paying the borrowed money.