The annual percentage rate or APR is the cost of credit or the interest rate that a credit card company charges the card holder for a whole year. This rate varies from one company to another. It is, therefore, beneficial to compare annual percentage rates when shopping for a credit card, allowing you to determine the actual cost of using this financial product. To understand how credit cards work, get information on rates, together with the terms and conditions that regulate them.
Using APR to Calculate Monthly Charges
The APR will be set by the issuing institution. There are two ways in which the billing statement of credit card presents them – in terms of monthly interest rates and APR. In fact, the monthly interest rate is the APR divided by 12. If the APR is set at 18 percent, then the monthly interest rate will be 1.5 percent. To see the daily interest charge, simply divide the APR by 365.
If you want to calculate the charges for a particular month, multiply the average daily balance by the monthy interest rate. For example, if the average balance is $100 and the monthly interest rate is at 1.5 percent, the monthly charge stands at $1.5.
Factors that Affect APR
The annual percentage rate offered by credit card companies can either be lower, higher, fixed, or variable. A person with a good credit score has a higher chance of obtaining credit card with a lower APR. However, those who apply for their first credit card, or individuals who have a lower credit score may have to settle for cards that have higher APR.
Sometimes, the APR is fixed, meaning that it remains constant for the entire year, but the company can still increase it with a few days notice. Other credit companies offer variable interest rates which can change depending on the financial markets and interest rates in general.
Lowering the Monthly Charges
Even if the APR on your card is quite high, there are ways to reduce your monthly charges. Bear in mind that the longer it takes you to repay a credit card debt, the more interest it accumulates. The smart way to get rid of high monthly charges is to pay off a good portion of your debt over a month to decreare the principal. It is precisely the principal that financial institutions charge interest; so, if you lower the amount, the interest will also go down.
Finding a Credit Card with Lower APR
While credit cards are convenient to use, they are a very good source of debt. To take a good advantage of them, look for Canadian issuers that offer lower APR. The MBNA Gold MasterCard® comes with APR of 9.99, no annual fee, and credit line of up to $50,000. The Capital One Gold MasterCard® goes with a higher APR of 11.99, annual fee of $19, and is subject to credit approval. The annual rate on cash advances stands at 19.8 percent, but customers can save money by transferring high interest debts with the company’s no-fee balance transfer service. The SmartLine™ Platinum MasterCard offered by Capital One comes with a regular APR of just 5.99, interest rate at 19.8 percent, and no annual fee. Only clients with excellent credit score are subject to approval.