If you have ever read the terms and conditions on your credit card statement or application form, you must have come across the term APR. But do you understand what exactly it stands for and how it will affect your budget as well as your wallet?
Whether you’re a beginner or one already using the card this article will help you understand What is APR in Credit Cards? (Annual Percentage Rate) will help you out for the responsible management of your finances.
What is APR in Credit Cards?
APR stands for Annual Percentage Rate. This is the interest rate that is applied on any of the unpaid balances not paid over the time.
In other words, if you do not settle your credit card account in full by the deadline, the bank will charge you an interest. The interest that is given is based on the APR. You can take APR as the “cost of borrowing” from your credit card provider.
How Does APR Work in Credit Cards?
If your card has a 24% APR, that means you will not be charged 24% every month. Instead, this rate is spread over 12 months, so you will be charged 2% per month (approximately).
For example, if your balance is ₹10,000 ($120) and you do not pay it off, then you will have to pay an extra interest of ₹200 ($2.40) apart from the principal every month.
Remember: Interest will only be charged if you carry over a balance. If you settle the entire amount by the due date, interest will not be charged.
Types of APR on Credit Cards
Apart from the one mentioned earlier there are several other types of APR. The most frequently used are as follows:
1. Purchase APR
- This is the rate of interest that is applicable to the normal purchases (like groceries, shopping, etc.).
- If you don’t make a full payment for your bill, then this rate will be applicable.
2.Cash Advance APR
- This APR is for when you take out money from your credit card.
- Typically, it is higher than the purchase APR.
- There is no grace period—interest accrues from the very beginning.
3. Introductory or Promotional APR
- Several credit cards grant a 0% APR for a period ranging from 6 to 18 months on purchases and balance transfers.
- A good opportunity, especially for large purchases if you pay before the end of the introductory period.
4. Balance Transfer APR
- This is the APR that will be charged if you decide to transfer the balance from one card to another.
- May be even less than the usual APR, particularly during the promo period.
5. Penalty APR
- In case you miss a payment or Violet the terms, a penalty APR will be charged.
- It is possible for it to go as far as 30%
- A good reason why you should always pay on time.
APR vs Interest Rate – Are They the Same?
APR and Interest are not exactly the same terms they differ in:
- The Interest Rate stands for the cost of a loan.
- APR is the interest rate plus any additional fees (e.g., annual, processing, etc.).
That is why APR is a more reliable number for you to know your real expenses in the long-term.
How to Check Your Credit Card APR
Your APR is usually indicated in:
- The credit card agreement
- The monthly statement
- The online banking portal
Tips to Avoid Paying High APR on Credit Cards
It is not at all times possible to get rid of the APR but the smart use of it can help you to reduce or even eliminate the interest charges on your card.
Here are some expert advice:
- Pay your balance in full every month to avoid interest.
- Avoid cash advances unless it becomes absolutely necessary
- Take advantage of 0% intro APR offers, but pay back before the promo period is over
- Create auto-payments and never miss payment due dates.
- Keep a good credit score—this makes you eligible for cards with lower APRs
Why APR Is Important To You
- Saves money: Lower APR = less interest paid over time
- Financial planning: Allows you to see the actual cost of borrowing
- Better choices: Enables you to better compare credit card offers
- Credit health: High APRs + unpaid bills = debt trap
Conclusion:
APR may seems to be an another bank term but it play an important role in how much you pay while using your credit card. Knowing what APR is, and how it works and hoe to manage it smartly can help you save money and avoid unnecessary debt.
Therefore whenever you pick up a credit card offer don’t just look for the good rewards and offer always check the APR as a priority. Being financially strong and smart not only means knowing only how to spend but it also does mean how to borrow wisely.
Frequently asked Questions:
Q1. What is good APR for a Credit card?
A good APR is typically under 15% but it depends upon the credit score and the type of card.
Q2. Can APR change over time?
Yes, most of the credit cards have a variable APR which can rise or fall with the market rates.
Q3. Do I have to pay APR if I pay full amount on time?
No, if you pay full amount before the due date then you won’t be charged any interest.
Q4 How is credit card APR calculated monthly?
Divide the annual APR by 12. E.g 24%, it’s 2% monthly.