There are different card products offered by various card companies, and their features vary greatly. Hence getting the right card that is suitable for your situation is a tricky process. Each credit card has its own set of unique features. But the fact is that most of the cards have the same features but with small degree of variation. Each card has its own APR and it is crucial that you understand what it means and how it works.
APR denotes “Annual Percentage Rate”. It is the interest charged to you for making purchases using credit and not paying off the full outstanding amount. It is shown in percentage.
The crucial APR
It is vital to consider the APR while applying for the credit card. It can dramatically affect your capacity to repay your card balance. The APR of the card differs not only amongst the various cards but also from the method and the type of purchase.
The APR for the cash advance on the card is the highest, followed by the APR for purchases. So if you are taking a cash advance of even $100.00, you attract an APR that can be a steep as 23%. For purchases, the APR can hover in the vicinity of 19%. Hence it makes sense to use the credit cards in case of emergencies or for purchases that you can pay off completely by the end of the month.
APRs also depend on the balance unpaid on the card. They are known as tired APR’s as the APR varies according to the balance tier in which you fall on the specific month. E.g. the balance of $0-$2,000 can have an APR of 14% while the balance exceeding $2,000 carries an APR of 18%. Hence it makes sense to carry lower balance on these cards.
Again, there is a penalty APR, which is applied if you make late payments frequently. This will increase the APR and consequently the total balance. Ensure you make timely payments.
0% interest credit cards
The very popular marketing technique used by the card companies is the introductory APR. You can transfer your existing higher interest card debt at this reduced interest rate on the new card. The purchases you make during the introductory period will also attract this lower interest rate. This allows you to reduce your balance substantially and you can repay more of debt during the introductory period.
But be careful of the future APR/ delayed APR that is effective once the duration of the lower rate is over. This rate may be far higher than the intro rate.
Hence it is important to look carefully at the APR and find out the actual rate for the card you are considering.