What do you notice most on credit card advertisements? Probably the interest rate (or APR as it’s also called). This is the thing that gets publicized most by credit card companies. They know that the majority of people will see the lowest interest rate card and choose that one without looking at other information.
APR is without doubt an important thing when choosing a credit card, but it’s not the only thing to look for. Understanding credit card interest rates is important.
The question is, what is APR? Basically it is the interest rate which the credit card company charges on the amount of money which you owe to them. The interest will be charged if you don’t pay the full amount owed in time.
When your credit card bill arrives, it states the full amount of money which you currently owe to the credit card supplier, the minimum payment which they require and a date by which payment must be made. You can either pay off all of the money which you owe or just make the minimum payment.
If you make a full payment (by the due date), you are not charged any interest. However, if you decide to go with the minimum payment or some amount that is lesser than the full amount, the credit card supplier will charge interest based on the credit card rate and the balance amount. This credit card rate is the interest rate that you agreed with them at the time of applying for the credit card. The credit card rate or the annual percentage rate, as is obvious, is an annual interest rate.
The credit card suppliers use this annual credit card rate to calculate the monthly credit card rate and then they calculate the interest on the balance amount that you owe them. The balance amount here is simply = Full amount – (payment made by you). This interest is added to your balance for the next month (at the time of next billing cycle).
If you should make a part payment again, a new balance is going to be calculated and the monthly rate of interest will be applied to work out the new interest. This process continues until the balance is paid in full.
This means that it is possible for a vicious circle to occur, and accounts for why interest rate is an important factor to take into account when deciding on a new credit card.
Alex Russell has had many articles on credit cards published. You can find more information on his website Settle Credit Card Debt Now. He has also written on consolidation of credit cards. Visit his site today.
Tags: credit card, credit card APR, credit card interest, Finance, money personal finance