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Understanding the APRs on Your Credit Card

By: Emma Eilbeck BA (hons) - Updated: 11 Sep 2012 | comments*Discuss
Credit Cards Credit Card Aprs Instant

Credit card firms can often use a lot of technical jargon and abbreviations when it comes to describing how much interest you will pay on your credit card.The term APR is one such term, and actually stands for Annual percentage rate.This refers to the rate of interest that you will pay on your outstanding balance over the long-term.So, if your credit card balance one month is £400, and the card’s APR is 4.5%, then you will need to multiply the £400 by 4.5%, then multiply the balance the next month by the same amount.

If you don’t pay the balance off on your credit cards for 12 months, then you will need to multiply the new balance every month by the APR, which means you are also multiplying the interest that you receive from the previous month, if you fail to pay off any of the balance. For example, the second month, you may have to multiply £410 by the APR rate, to work out what the overall APR will be.

APR verses Interest Rate

Don’t be fooled into thinking that the APR rate is the same thing as the interest rate. When you apply for a credit card you need to ask yourself one question: “How will you be using your credit cards?”The answer to this question can make all the difference when it comes to deciding which card is best for you and how you can get a low interest rate. Be honest with yourself, if you know that you will not be paying off the balance straight away, then go for a credit card which offers a lower APR, as oppose to a lower interest rate. It's important not to rush into anything and got for the card which looks the best, or gives you instant approval.

If you apply for a card with a lower APR then it will work out a lot cheaper, and you will be paying low interest if you intend to buy a large purchase and not pay it off for around 12 months, as the overall interest rate you are paying will be much lower.If on the other hand you will be paying off your credit card in full each month, it is better to go for credit cards that offer a lower interest rate every month, as you will end up paying less in the short-term and will reap the reward. Understanding how the different rates and charges work on a credit card can be a tricky business, it is important to not just look at the initial rate, but to look at what you will be using the card for, and how you can get it to benefit you.

If you use your credit card smartly you can end up paying a reasonable rate and get a good deal, if you don’t think realistically about what you are going to be using the card for, then you could face problems.Credit card firms do not have all the different rates there to trick you, but sometimes it can feel that way. So it is worth telling the credit card provider what you will be using the card for, and they should be able to go through with you all pf your options, and which rate will be best for you.

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