Annual Percentage Rate(s)

When you use your credit card to purchase an item, you are essentially taking out a loan. Your credit card company lends you this money at an interest. The interest your credit card company charges you if a balance is carried over from one grace period to another is called your Annual Percentage Rate abbreviated as APR. An APR is also the interest you are charged for a cash advance or the transfer of a balance from another credit card.

A credit card can have multiple APRs

  1. An APR for purchases
  2. An APR for cash advances
  3. An APR for balance transfers
    APRs for cash advances and balance transfers are usually greater than that for purchases.
  4. Tiered APRs – APRs can be applied to different amounts of an outstanding balance. For examples a credit card company can apply an APR of 15 % for a balance from $1 - $2000, 17 % above $2000.
  5. An introductory APR – Credit card companies offer low APRs to attract consumers to use their credit cards. Typical introductory periods may last anywhere from a couple of days to a year. After an introductory period is over, a new APR applies.
  6. A penalty APR – The APR on your credit card may increase if you make a late payment. This penalty APR may remain in effect for 6 months.
  7. A delayed APR – A different APR will be applied in the future. A credit card company may advertise no interest till next February. The APR that will be in effect in February is the delayed APR.
  8. Credit cards may have fixed or variable APRs

  9. Fixed APRs – Some credit cards offer a fixed rate, which means that the APR on the card does not change, at least not that often. A credit card company can change the APR on a fixed rate card. However you must be informed before the APR is changed.
  10. Variable APRs – Credit cards with variable APRs can change often without you being informed. APRs on these credit cards are tied to other interest rates such as the prime rate or the Treasury bill rate. If these rates change so does the rate on the credit card.

It is important to carefully read the information on the credit card application and in the credit card agreement to see how often the APR on a credit card can change. It is also important to understand how your APR is calculated.


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