What is Annual Percentage Rate (APR)?

{{credit}}Possibly the most important term for you to understand on any credit card application is the APR-- or annual percentage rate. Understanding what it is and how it works can affect how much money comes out of your pocket when you have to carry a balance from month-to-month and may go a long way torwards keeping your credit healthy.

Banks and other financial institutions make money by charging interest on money that they lend to consumers. The APR is the interest rate you'll pay on the money you borrow and may be calculated several ways.

The APR on a credit card can vary due to several things. If you have a good credit rating, you'll have a better chance of getting a lower APR. However, if you have little or no credit, your APR will be much higher. Rates can vary anywhere from 7 percent to upwards of 23 percent.

There are several ways for your interest rate / APR to be calculated:

Multiple APRs: Credit card terms usually include more than one APR. One rate for your standard purchases, another for cash advances and a third for balance transfers. The APR for balance transfers and cash advances are often higher than for purchases.
Tiered APRs: A tiered APR means that the interest rate will rise or fall as your account balance goes up or down. This may be important, if you plan to carry a higher balance.
Penalty APRs: Some lenders will increase your APR, if your payment is late or you exceed your credit limit.
Introductory APRs: This is a teaser rate that can be as low as 0%, but only for a limited amount of time. A higher rate will apply after the introductory period expires. Be aware of what the APR will be once the introductory ends. That low intro rate may cost you more in the long run, especially if you carry a balance.
Fixed & Variable APRs: A 'fixed' APR remains in affect through the duration of the credit card agreement while a variable APR changes based on the prime rate or the treasury bill rate. Many variable rates are the prime rate plus 3 percent. The prime rate is the standard by which interest rates are measured, and it can be found in a newspaper’s business section or online.

Before you apply, look over the list of 'terms and conditions' on the credit card application and make sure you understand all the fine print >>>. You should know whether your credit card’s APR can change and all of the other rates and charges that will apply to the card. Low apr credit card savings >>>{{/credit}}

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