APR Credit Cards: What You Need to Know Before Applying

The term Annual Percentage Rate (APR) on credit cards is not merely a simple number but has the power to impact your credit card bills. Deciphering your credit card’s APR and how it works will help you have better control over your finances and keep borrowing costs low. 

Here’s a quick guide to help you make informed decisions.

What is an APR on a Credit Card?

It is the annual interest (finance charges) that banks and financial institutions levy if you don’t pay the credit card bill by the due date. Most credit cards come with a variable APR, which can change based on the issuer’s policies and the prime rate determined. The interest is compounded, so the longer you carry the balance, the higher the interest amount.

Types of Annual Percentage Rates on Credit Cards

While it may seem like a straightforward concept, there’s no one kind of APR. It varies depending on the type of transaction. Here are some of the types you must know: 

  • Purchase APR 

It refers to the rate of interest you have to pay on online and in-person credit card transactions. 

  • Introductory APR 

This entails a promotional rate offered for a limited duration, which is generally lower than the purchase APR and even zero in some cases.

  • Cash Advance APR 

It is the rate that banks charge on funds that you withdraw from an ATM using your credit card.

  • Penalty APR 

Banks levy this type of APR if you miss or default on payments, which will only be removed after you make several payments on time.

  • Balance Transfer APR 

It applies to the amount you transfer from your existing credit card to another one to enjoy lower rates or consolidate your debt.

What is a Good APR on Credit Cards?

The annual percentage rate varies across cards and issuers. Issuers consider your creditworthiness, monthly income, and other factors to determine the interest rate. 

That said, a good annual percentage rate for a credit card is generally below the average credit card interest rate. The lower the APR, the lower the charges. You can check the nominal or standard APR on the account statement available on the online credit card app or website.

How is the Credit Card APR calculated?

A credit score is one of the most important factors issuers use to determine interest rates. A higher score can lead to lower rates, whereas a low score can increase the rates. Here are some pointers to help you understand how APR calculation works:

  • The interest rate varies depending on the issuer, transactions, and services
  • Issuers typically charge interest on a daily or monthly basis, with effective APR being higher if it is applied more frequently
  • You also need to account for the compounding effect by multiplying the monthly interest rate by 12
  • Note that if your credit card offers a grace period, you don’t have to pay interest on transactions during this duration
  • The annual percentage rate of credit cards also depends on the benchmark rates set by the central bank

How to Get a Lower Credit Card APR 

Although it is decided by the issuer, your credit profile and usage have an impact on the interest rate. Here are some easy tips to secure lower rates and keep your costs low: 

  • Improve Your Credit Score 

As credit score directly impacts the applicable APR on credit cards, improving it will help you reduce the interest rate.

  • Negotiate with the Issuer 

In specific cases, like if you have been a loyal customer, you can contact the issuer and ask them to lower the APR.

  • Pay Bills on Time 

Making timely and consistent credit card bill payments is key to improving your creditworthiness, which then helps reduce the APR over time.

  • Reduce Your Credit Card Debt 

By paying more than the minimum, you can lower your overall credit card obligations and boost your creditworthiness. This helps you get lower rates. 

An important aspect of getting the best APR on credit cards is to read and understand your credit card agreement. This will help you better understand the factors that influence the APR, and based on that, you can choose the right card. Keep in mind that if you don’t practice responsible credit card usage, even the most rewarding cards can become a financial burden.

So, compare different card offers to select one that best suits your finances. If you want a credit card that allows you to enjoy exclusive perks while charging minimal interest, get the One Credit Card. Earn more with 5X rewards on your top 2 spend categories and exciting rewards for grocery shopping, hotel bookings, and more.

Using the powerful mobile app of this premium metal card, you can control all aspects of your credit card and avoid overspending to evade APR. Apply now to reap these benefits and more!

Comments

No comments yet. Why don’t you start the discussion?

Leave a Reply

Your email address will not be published. Required fields are marked *