Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
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.
Most credit cards come with terms and condition that will help you in understand the following types of credit card APRs:
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.
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your credit card to withdraw money from an ATM, the Cash Advance APR will be applicable on the total amount you have withdrawn.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.
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.
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.
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.
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%.
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.
Having a healthy credit score by making payments on time are one of the most effective ways to reduce APR.
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