What is APR on a credit card: Types of credit card APR and how to calculate it

What is APR on a credit card: Types of credit card APR and how to calculate it

Last Updated on February 19, 2023 by admin

You must have heard the term APR on Auto loans, mortgages or APR on a credit card but you don’t know the meaning right?. (APR) means annual percentage rate) refers to the yearly interest rate you’ll pay if you carry a balance on your credit card.

For the purpose of this content you will learn What is Credit card APR,…….  different types of credit card APR–, important of APR and how to calculate credit card (APR) Annual percentage rate ) You will also learn how to  find your Credit Card APR?

What do you understand by the word APR  on credit card or Auto loans, mortgages.? From my point of view APR determines the cost of borrowing on your credit card or charged to borrowers or income earned on an investment.

Your credit card’s APR is the interest rate you are charged on any unpaid credit card balances you have every month. When it comes to credit cards, the APR and interest rate are typically the same. . Knowing a product’s APR can help you compare credit offers and find the one that’s best for you. But different factors—like loan type or creditworthiness—can influence the APR you’re offered.

When you sign up for a credit card, it’s important to know the various APRs, since it can have a big impact on how much you owe if you carry a balance month to month.

Credit cards often have a variable APR, meaning your rate can go up or down over time.On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date.

 

Types of credit card APR

As earlier explained, APR means the interest rate you are charged for borrowing money, however, you don’t get charged interest if you pay off your balance on time and in full each billing cycle. on your credit card.

Bank loans generally come with either fixed or variable APRs. A fixed APR loan has an interest rate that is guaranteed not to change during the life of the loan or credit facility. A variable APR loan has an interest rate that may change at any time.

The three main types of APR are:

Most credit accounts have either a variable or fixed-rate APR

Fixed rate
Variable rate
Promotional rate

With fixed rates, your APR is likely to stay the same throughout the time you have your card unless otherwise stated. Variable rates may increase or decrease depending on federal rates.

On the other hand, Promotional rates include zero-interest or low-interest periods offered as introductory incentives by credit card companies. The credit card promotions must last for at least six months, but some may last longer. APR may increase when the promotion ends, and this could affect the amount a borrower owes.

 

1, Cash advance APR:

The interest rate you incur  for using a credit card to withdraw cash from an ATM or bank.. This rate is often one of the highest APRs you can be charged and cash advances incur interest immediately with no grace period.

2. Purchase APR:

This is the interest rate charged on new purchases. The rate applied toward new purchases on a credit card that are not paid in full by the due date and are carried forward into the next billing cycle

3. Balance transfer APR:

This is the interest rate applied to balance transfers and may be equal to or greater than the purchase APR. The rate applied when transferring an existing debt balance on one credit card account to a different card account.

4.Penalty APR:

This is the rate applied to a card account when the cardholder fails to make payments in full or on time,  or When you pay late, card issuers may penalize you with an interest rate that’s higher than your regular APR.

5.Introductory APR:

During the intro 0% APR period, you may benefit from no interest on new purchases, balance transfers or both. credit cards offer intro APR periods that charge no interest for a set length of time (up to 21 months).

 

What is the important of APR

By breaking down your interest rates on a daily and monthly basis you can understand how much of your money is going to interest.

By calculating your daily and monthly APR, you can learn more about the interest you are accruing over time and use this information to make some of your financial decisions. This may motivate you to pay off your debt or help you decide what purchases are worth putting on the credit card.

 

How to calculate credit card (APR) 

APR is calculated by multiplying the periodic interest rate by the number of periods in a year in which it was applied. It does not indicate how many times the rate is actually applied to the balance.

 

How do I calculate my monthly APR?

Calculating your monthly APR rate can be done in three steps:

Step 1: Find your current APR and balance in your credit card statement.

Step 2: Divide your current APR by 12 (for the twelve months of the year) to find your monthly periodic rate.

 

 

Where:

Interest=Total interest paid over life of the loan
Principal=Loan amount
n=Number of days in loan term​

Let assume a credit card with a daily rate of 0.06%, a daily balance of $100 and a 28-day billing cycle would have the following APR:

(0.0006) x ($100) x (28) = 1.68

 

How do I calculate my daily APR?

Your credit card company may calculate your interest with a daily periodic rate. Calculate your daily APR in three steps:

Step 1: Find your current APR and current balance in your credit card statement.

Step 2: Divide your APR rate by 365 (for the 365 days in the year) to find your daily periodic rate.

Step 3: Multiply your current balance by your daily periodic rate.

 

How to find your Credit Card APR

You can find your credit card’s APR on your monthly billing statement in the section about how your interest charges are calculated. Also you can view your APR after logging into your account online or via your bank’s mobile app.

Meet Ogbeide Frank, popularly known as perere, a blogger who loves writing about finance and Tech. He studied Business administration at the Ambrose Alli University Ekpoma and Mobile Communication at Orange College Malaysia .Frank have worked as a banker and consultant in variety of Nigeria agencies

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