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All About Credit Card
Rates
What’s the thing that is most prominent on any credit card ad?
Well, it’s the credit card rate (or the APR, as we know it).
The credit card rate is the most publicized thing in the world
of credit cards. A lot of people just compare the credit card
rate of various credit cards and just go for the one that is
offering the lowest credit card rate (or APR). Credit card
rates are, in fact, one of the most important factors in the
selection of a credit card (though not the only factor).
Therefore, a proper understanding of Credit card rates is even
more necessary.
So, what is a credit card rate or APR? Very simply, credit card
rate is the rate of interest that the credit card supplier will
charge you with on the amount you owe them. The credit card
supplier will charge you an interest only if you don’t make
full payments in time. When you receive your credit card bill,
it specifies the full amount you owe the credit card supplier.
It also specifies the minimum payment that you must make (by a
particular date), in order to avoid incurring a late fee and
other inconvenience.
You have the option of making either a full payment or just the
minimum payment. If you make a full payment (by the due date),
you are not charged any interest. However, if you decide to go
with the minimum payment or some amount that is lesser than the
full amount, the credit card supplier will charge interest
based on the credit card rate and the balance
amount.
This credit card rate is the interest rate that you agreed to
at the time of applying for the credit card. The credit card
rate or the annual percentage rate, as is obvious, is an annual
interest rate. The credit card suppliers use this annual credit
card rate to calculate the monthly credit card rate and then
they calculate the interest on the balance amount that you owe
them. The balance amount here is simply = Full amount –
(payment made by you). This interest is added to your balance
for the next month (at the time of next billing cycle). If you
again make a partial payment, the new balance is calculated
again and the credit card rate (monthly one) applied to it for
calculation of new interest; and it keeps going on and on until
you make the full payment.
That’s how credit card rate acts in this vicious circle. Hence,
credit card rate is termed as the most important consideration
in choosing a credit card.
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