Explaining Annual Percentage Rate (APR)
When you take a loan from any entity, paying interest monthly or yearly – depending upon the plan you have chosen – is a must. Paying an interest rate is non-negotiable when you have taken a loan from a bank, but you have an option in choosing how much money you want to pay as interest. It can be low or high, depending upon your income and spending. From personal loans to home loans and credit cards, APR is used on everything. In simple terms, the Annual Percentage Rate is the interest charged by the loan-disbursing entity on a yearly basis, and is paid by the individual opting for the loan (or credit card).
Functioning of APR in Credit Cards
How does an APR credit card work? Surprisingly, the math involved in calculating APR credit cards isn’t as difficult as you might think. Your standard APR amount will be set by the issuer of the credit card once you fulfil all the obligations to get a new credit card. Think of it as a price you have to pay for borrowing money. The interests on your credit cards will be calculated on a yearly basis. Your credit score plays a vital role in calculating your APR. A credit score is basically your ability to pay back the loan. The higher your credit score, the higher the chances of you getting a low APR. But if your credit score is poor, then you will be charged more.
An APR credit card comes with several terms and conditions. To help you understand better, the following are the types of APR credit cards.
- Purchase APR
This is the most common and simple type of APR. It is calculated based on the purchase you make on your credit cards. It is the lowest amount compared to any other APR credit card. It can be any kind of purchase, be it clothing, food or movie tickets. This APR will be charged on your credit card when you make a new purchase and if you carry a balance on your credit card.
- Cash Advance APR
Cash Advance APR is often higher than Purchase APR. This will be charged when you withdraw cash from an ATM using your credit card, based on the amount of cash you withdraw. After the end of the grace period, the Cash Advance APR will be tallied on a daily basis. Withdrawing cash from a credit card should be your last resort and must be done only during an emergency.
- Penalty APR
What happens when you are not able to make the minimum payment for over two months on your credit card? Your issuer will slap a Penalty APR which will be higher than both the Purchase APR and Cash Advance APR. When you miss a payment or even happen to pay late, they will increase your APR to a higher rate than before, negatively impacting your credit score.
- Introductory APR
Many credit card issuers offer an introductory APR where you can take advantage of zero APR for a limited period of time or very low APR. With such an APR credit card, you can carry a balance without accumulating interest charges for a certain amount of time. But this comes with a condition. This will be applicable only if you make the required minimum payment on time. Introductory APR applies to balance transfers. Some banks may offer you an introductory APR on both purchase and balance transfers. It will be applicable for a limited period. Once the period is over, a standard APR will be applied to your credit cards.
- Balance Transfer APR
Balance Transfer APR is basically the interest you will pay for transferring the balance from one credit card to another. This APR is typically low – sometimes even 0% for the offer period, and you can transfer the debt from one credit card to another to take advantage of the low-interest rates.
Once the offer period ends, a regular balance transfer APR is applicable and you will be charged the new interest rate.
Fixed APR and Variable APR
As the name suggests, a fixed-rate APR credit card will have a fixed amount of annual percentage rate which will not increase or decrease. And even if the interest rate changes, the issuer of your credit card will notify you regarding the same.
Variable-rate APR credit cards will change their interest rates based on the economic indexes. It depends on economic factors and your issuer’s policies. Be sure to read your cardmember agreement to know more about how and when the interest rates might fluctuate.
How To Check Credit Card APR
If you want to check your credit card’s APR, then log into your account on the issuer’s website or your bank’s mobile app. It will be listed on your recent statement. If you cannot find it, you can call your credit card issuer and find out where to look for APR. Always be sure to maintain a good credit score to avoid a high credit card APR.
The one-of-a-kind Bajaj Finserv RBL Bank SuperCard brings you countless benefits with additional rewards. It is an all-in-one credit card – it can act as a credit, debit, loan and EMI card. The credit card also comes with a low APR, and you can benefit from interest-free cash withdrawals from ATMs for the first 50 days, and avail personal loans with a nominal interest rate of 1.16% per month.