Credit card interest rates can be confusing. Determining the true cost of carrying a balance on your credit card depends on how often the interest is calculated—which may be daily. The following overview of credit card APR can be helpful in understanding how it works so that you can determine whether or not you’re getting a good deal.
What’s an APR Credit Card?
The term APR stands for annual percentage rate. It refers to the interest rate you’ll pay for carrying a balance on the credit card, plus any additional fees. Credit card interest
is the fee you pay the card issuer for being able to carry a balance on the charges you make.
When advertising their products, most credit card issuers list the APR on the promotional materials they send out. As the consumer, this is very helpful because it makes it quick and easy to compare different cards.
You can avoid interest by paying off your balance in full each month. Keep in mind that interest on your account may grow considerably—even if you aren’t making new purchases—if you carry a monthly balance for a long time.
How Does APR on a Credit Card Work?
Understanding how the APR on a credit card is calculated is a great way to see how it works. The APR can be calculated through the following steps:
1. Determine the Average Daily Periodic Rate
The average daily periodic rate (ADPR) is the amount of interest you are charged per day. It’s usually found on your monthly statements.
2. Multiply the ADPR by 365
If your credit card doesn’t charge any fees, you simply multiply the ADPR by 365 days a year to get your APR.
Credit card interest is usually compounded daily. However, even though the daily interest rate is usually very small, if you don’t pay your balance in full over an extended time period, the compounded interest rate can cause your unpaid balance to grow significantly.
What Does Credit Card APR Mean?
Credit card APR simply refers to the annual percentage rate—which is different from the interest rate. The interest rate represents the interest that you are charged for the balance on your account. The APR, however, includes interest but also any fees the lender may charge.
Therefore the APR gives you a more complete picture of how much it will cost you in total to borrow money. If a credit card doesn’t have any fees—like an annual card fee—then the APR and the interest rate could be the same.
What Is a Good APR on a Credit Card?
What constitutes a good APR can vary depending on the type of card you’re applying for, your credit score, and other factors. It’s all relative. Some credit card issuers, for example, offer cards with APR ranges. That’s why you may not always get the lowest advertised APR.
The average credit card APR
is 16.65% as of 2022. A good APR will be at or below the national average.
Some credit card issuers offer promotions with a 0% APR for an introductory period, which could be as long as 12-18 months. This allows you to transfer a balance and use the card without paying any interest during the introductory period.
A strategy for finding a credit card with a great APR is to apply for a card with a credit union. Because credit unions are nonprofit organizations, they typically have lower rates and fees than banks and other lenders.
How to Find the APR on a Credit Card
If you have received an advertisement for a new credit card, the APR will be listed in the promotional materials. It will also be included in the terms and conditions.
If you already have a credit card but aren’t sure of your APR, you can contact the card issuer’s customer service department or review your account online to find out what it is. Having this information will help determine whether you’re getting a good deal with your card or if you could potentially save money by transferring your balance to a different one.
Another simple way to find the APR on a credit card you’re already using is to check your monthly statements. There should be a section near the end of the document called “Interest Charge Calculation” (or something similar) that lists the APR.
How to Lower Credit Card APR
The key to obtaining a lower APR on a credit card is to improve your credit score. Lenders use your credit score to evaluate your level of borrowing risk. People with higher scores may be rewarded with better rates because they’re considered less risky to lenders.
If your credit score has improved since you obtained your credit card, it’s worth contacting your card issuer and asking for a better APR. If you’re currently struggling to pay your monthly balance, it’s okay to tell them about your situation because if you’ve been with the lender for a while, they may consider your request and could offer you a lower APR.
However, if you’re unable to qualify for a lower APR with your current credit card company, you might be able to obtain a new card with a 0% promotional APR and transfer your balance there. This may be a good strategy if you think you can repay the balance within the introductory period.
Credit Cards With Bowater Credit Union
Credit cards are a convenient and safe way to make purchases, but you should be aware of your credit card’s APR since it adds a little more debt to your bill every month.
If you’re considering applying for a credit card, Bowater Credit Union offers two great options. We offer a ScoreCard Rewards Visa
that allows you to earn points on your purchases that you can redeem for merchandise and other things. We also offer a Classic Visa Credit Card
with a low fixed APR. There are no annual fees for either card.
Click on the following link to learn more about our credit cards. You can also apply online.