The Lowdown On Loan APRs

by : Peter Kenny

One of the more important factors for someone who is thinking about applying for a credit card is what is called the annual percentage rate or APR. Now, of course, many people who end up with credit cards did not consider the role of the APR in the costs that would be associated with the card's usage. They may not have considered it at all. Okay, so what is the big deal with the APR? That is the question this article seeks to answer. Let's get the lowdown on APRs.

First off, why don't we define what the APR is exactly. The annual percentage rate is a term that is used to describe the interest rate that you, the cardholder, will pay for a carryover balance on your account. This rate also applies for other features of your account like cash advances and balance transfers. The normal APR calculates the interest rate as an annual or yearly rate to your account. It should be apparent that if a balance is carried over from month to month, the amount of the APR could make a significant difference upon what you, the cardholder, will end up paying over the course of the year.

More Than One APR

Many credit cards actually include more than one APR. Take a look at some of the following APRs and the elements of your credit card account they are typically associated. You can see that the type of APRs you have on your card can determine how much your account balances will be over time.

1. There are separate APRs associated with purchases, cash advances, and balance transfers. The last two types are normally higher than the one for average purchases.

2. You also have what are called tiered APRs. With these kinds of APRs, a different rate amount is applied to those outstanding balances that fall within a certain dollar range.

3. The penalty APR is an adjustable APR that will increase when you make late payments consecutively, or within a certain time period, or based upon some other guidelines established by the card issuer and written in the agreement documents.

4. There is another APR called the introductory APR. This is an initial rate that lasts for a predetermined period after you first signed up for a credit card. This rate will be replaced by what will be your regular rate.

5. Finally, there is what is called a delayed APR. This type of APR is the kind that will come into effect at some later point, often after an introductory or no-interest period.

Fixed and Variable APRs

APRs can also be either "fixed" or "variable." What's difference? Well the fixed APR generally maintains the same levels over time, although the card company can change the rate with prior notice to the cardholder. The variable APR is far more subject to change than the fixed and will alter from time to time. Often the changes in the variable APR are associated with outside interest rates like the Treasury bill rate or the prime rate, as well as other factors.

You may not have considered what impact your APR could have on the amount seen on your credit card statements each month. Knowing more about APRs can help you determine how you use your card now and in the future.