What is APR on a credit card and how to calculate it?

Annual Percentage Rate (APR), as the name suggests, is a calculation of the interest rate annually. The interest rates are also referred to as finance charges. These charges will be paid yearly against your usage of credit card(s). You can figure it out by multiplying your daily finance charges by 365. However, the calculation is not conclusive, as the calculation is done on compound interest and not on simple interest method, which may also include certain fees. To be more elaborative, if you do not pay your monthly bills every month in full by the stipulated due dates, you will be charged with applicable fees and monthly finance charges, which will be added to the calculation of the APR. In this case, the APR will increase and continue to increase if your do not pay your remaining balance in full in the following month. The APR on credit cards may vary from cards to cards. Generally, it is between 11% to 35%. If you have a good credit score, then your APR may be low. On the other hand, if you apply for a new card with a bad credit history, chances are there that your APR will be higher.

Non-payment of your monthly bills in full may affect your APR. For example, say, your monthly bill for a particular month is $1,000 and your minimum payment is $40 with an interest rate of 15%. Now, if you pay only the minimum payments, you can surely avoid being charged with any penalty charges like late fees, over limit fees etc; your credit will also remain in tact. However, you will be levied with additional charges because of the non-payment of the remaining balance, which will apparently add to your APR calculation taking the finance charges in account. Moreover, if you continue to pay only the minimum payments for months and do not make payments in full in any given month, your APR will drastically increase amounting to a high percentage. You may end up with an APR of, say, 35%, which was not there when you started using your card(s).

Hence, before you decide to own a credit card, do verify the terms and conditions properly. Check out with other credit card companies, which may periodically offer 0% APR cards. Maintain a decent credit score. Try to pay your monthly bills on time in full. In case, you cannot make the full payments, try making higher payments than the required minimum ones. Do not default any payment at all. Always keep an eye on your credit score and try to improve it. Check your credit score and all other information regarding any credit cards on various websites available on internet. Do contemplate before you sign the dotted lines for a card. Remember, it is good to posses a credit card with a decent credit limit, but it is better to have this card with lower interest rates and higher credit limits. All the best for you.