Understanding Credit Card Interest Charges
Did you know that the same credit card can have different credit card interest? This reason is why it’s so important to make a credit card comparison before you decide on a card. If you don’t compare credit cards, you may end up getting a higher APR, and this can cost you money. This article will talk about different credit card interest rates. Also, we’ll talk about how to deal with credit card APR, and avoid it entirely. So this will help you to manage finances using credit cards more easier.
The first step to understanding APR credit card is to understand the terminology. Credit card offers come with a monthly interest rate. You’ll commonly hear credit card rates referred to as APR, rates, interest, or annual percentage rate. The lender will apply this rate to your existing balance each month when you don’t pay it in full. If your card has a higher rate, this could quickly begin to add up. There will be additional fees, so your end credit card rates will be around 10% higher than the listed rate.
For example, you have a balance of $100 on your card, and your rate is 25%. You think you’d owe $125 by the time the year was over. However, you’d actually owe around $128.35, and this is a 13.56% increase over what your card originally advertised.
4 Types of APR for the Same Credit Card
There are four main types of different credit card interest rates, and the same credit card can have different amounts. Again, this is why you should always compare credit card offers.
1. Introductory APR
An APR credit card works in the cardholder’s favor, and you can use it several ways. The most common way people use this is a balance transfer card. Cardholders transfer their balances from high-interest credit cards to a new card with an introductory APR of 0%. Normally, these cards come with six or twelve months of 0% APR. These credit card offers allow the cardholder to quickly pay down their existing debt while avoiding adding more fees on. It is a good idea to be careful with the APR’s end date. If you’re not, interest will get added to whatever balance you have left when the introductory offer ends. Many of these cards come with a 10% to 20% APR, so this can add up quickly.
2. Purchase APR
The purchase APR is one of the credit card rates you’ve most likely heard about. Different credit card interest rates and this includes purchase APR. Purchase APR is the annual percentage rate that the lender applies to your card each time you use it. You’ll get this additional charge whether you shop online, in-store, or over the phone. Traditionally, this rate is between 15% and 20%.
3. Penalty APR
Different credit card interest rates apply to penalty APR as well. If you make a late payment, you may not be too worried about it. If you have a strong payment history, the lender may reverse the late payment charge. However, they can’t do anything about the increased penalty APR. The same credit card can have different credit card interest rates, penalty rates included. Also, you can get a penalty APR if you go over your credit line available. This penalty rate APR will be permanent, and it is usually very high. For example, your new APR could rise to 29.99%.
4. Cash Advance APR
Cash advance APR applies to different credit card interest rates. If you’ve ever gotten blank checks in the mail from a lender, you can use these for cash advances. However, taking out a cash advance against your line of credit can cost you. It isn’t unusual for cash advance APRs to go above 24.00%. There is also no grace period, so this penalty is added on right away. A typical cash advance is meant to be for emergency purposes.
Finding your Interest Rates
Even though different credit card interest rates apply to the same card, you can find the rate relatively easy. To start, simply do a Google search for the card name. Once you’ve found the card’s website, look for the terms and conditions. You’ll usually find an interest charges section. This will outline the purchase APR, cash advance APR, balance transfer APR, and usually the penalty APR. If you already have a card, look at your monthly statement. The lender usually lists them on the last page under Interest Charges.
Calculating Your APR
Say you have a 24% APR with a 30 day billing period and a balance of $2,500. You divide your APR by 365 days. This gets you a daily periodic rate of 0.66%. Next, multiply the 0.066% rate by the 30 day billing period to get 1.98%. Finally, multiply 1.98% by the $2,500 balance to get $49.50. This is what the lender charges you per billing period with this balance.
Obtaining or Keeping Healthy Finances
Even though different credit card interest rates may be higher than others, you can keep your finances healthy. There are several things you can do to minimize or avoid your higher APR rates. We’ve listed several things to either keep doing or start doing to improve your financial health below.
- Pay your balance in full each month
- Never forget that a single card can have four different APRs
- Don’t use cash advances unless it’s a last resort
- If you think there’s an error with your rate, use the formula to double check it
- If you’re using the introductory APR to pay off balances, pay them off before it expires
- Always pay your credit card bill on time each month
Credit cards make it easy to help you manage your finances. Also, it is a good idea to compare credit cards before you select one. A credit card comparison can help you save money over the life of the card. If you use your card responsibly, you can be on your way to healthy finances.
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