Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
  • Credit Card APR

    Unlike other financial products, the credit card's interest rates are calculated on a yearly basis. The term APR (Annual Percentage Rate) indicates the interest you pay towards the transaction through your credit card. In simple words, it's a fee that you pay to your credit card issuer for the extension of the credit period. The credit card APR is calculated based on various factors and payable to the credit card issuer.

    Credit Card APR Types

    know your credit card APR
    Credit Card APR

    Most credit cards come with terms and condition that will help you in understand the following types of credit card APRs:

    Purchase APR

    This is the most common types of APR where the interest is calculated based on the purchased we make. Whether for food, clothing, entertainment, or any other reason, your interest will be subject to a common interest rate.

    Cash Advance APR

    When you use your credit card to withdraw money from an ATM, the Cash Advance APR will be applicable on the total amount you have withdrawn. The calculation of this type of APR is calculated on a daily basis after the end of the grace period, if the credit card issuer is offering any grace period. However, compared to Purchase APR and Cash Advance APR, the interest rate for Penalty APR is higher.

    Penalty APR

    When you are unable to make the minimum payment for over two months, most credit card issuers will charge you with a Penalty APR that is higher than the other types of interest rates.

    If you are transferring your card balance or switching to another card issuer, your credit card account will be subject to Balance Transfer APR.

    How are the Credit Card APRs Calculated

    When you apply for a credit card, the credit card issuer or bank will carry out a hard inquiry for your credit score. Your credit score will play a vital role in the decision of your credit card APR. If your credit score is excellent or good, there are more chances that the issuer will offer the credit card at a lower APR, however, a poor score will attract a higher APR.


    Simple Tips to Reduce the APR

    • Healthy credit score - By maintaining a healthy credit score, you will avoid the higher APRs on your credit card. Whether you already have a credit card or you are thinking of applying for a new one, a good credit score will help you in keeping the interest rates lower.
    • Payment behaviour - If you manage to make the full payments before the due date, you don't have to worry about credit card APRs, but when you are making only the minimum payments, the extended credit will be subject to an APR.

    If you are monitoring your credit score and working towards improving it, once you notice a positive and sufficient change in your score, you can get in touch with your credit card issuer to request for a re-evolution of the APRs.

    You can refer to BankBazaar's website to obtain a free credit score. The process is simple and doesn't require much time. You are also advised to check your credit score at least once a year. This will help you in understanding your financial credibility while applying for financial products such as credit cards and loans.

    You can refer to your credit card's terms and conditions to determine the applicable APR. Alternately, you can also reach out to your credit card issuer to understand the APRs that is exclusively applicable for your credit account.

    FAQs on Credit Card APR

    1. What is credit card APR?

      The Annual Percentage Rate for credit cards is the total interest rate for a year. For example, if the monthly rate of interest is 3.50%, the APR will be 42%.

    2. How much is penalty APR?

      If you miss your credit card payments for 2 months, an additional interest rate will be charged as penalty and will be applicable on your total outstanding.

    3. How can I reduce APR?

      Having a healthy credit score by making payments on time are one of the most effective ways to reduce APR.

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