Last Updated on August 28, 2022 by Admin Wells
APR, or Annual Percentage Rate of Interest, is a vital aspect of any credit card. It’s the interest rate you’ll pay on your purchases and balance transfers. In this article, you’ll be given an overview of APR, how it works and why it’s so important when choosing a credit card.
What is APR?
According to experts like Lantern by SoFi, “APR stands for annual percentage rate. That rate is related but not the same as your credit card’s interest rate.” To calculate how much your credit card will cost, use this formula: APR x Balance Owed = Total Monthly Payment.
For example, say you owe $1,000 on a credit card with an APR of 15%. Your monthly payment would be $15 (1% x $1,000). Make minimum payments on this debt, and don’t pay off the balance before interest accrues (when your account is in arrears). Then after one year of making only minimum payments and paying zero dollars toward the principal amount owed on your account at any time during those 12 months of making only minimum payments. Your total balance will be $1,015!
What’s the difference between APR and interest rate?
APR, or annual percentage rate, is the interest rate you pay on your outstanding balance. So if you have a credit card with an APR of 15 percent and carry a $1,000 balance at the end of each month (not including your monthly payment), you will pay $15 in interest every month.
If you only make the minimum payment each month (typically 2-4 percent of your balance), most lenders will continue charging interest on that unpaid amount until it’s paid off.
This means that even if you decide to use a cash advance option instead of paying off your debts quickly with an installment plan, any outstanding balance will continue to accrue additional fees and compound into even more debt!
How to calculate the impact of APR on your credit card statement?
If you want to calculate the impact of APR on your credit card statement, follow these steps:
- Use a calculator. This is the most basic way to figure out how APR impacts your balance. Just plug in the numbers and get an instant answer.
- Use a credit card calculator. If you’re not up for math, plenty of online calculators can help with this calculation. Just put in all the relevant data—the fees, interest rates, and initial loan amount—and see how much extra money you need to make each month before paying off your debt altogether.
- Use a cash back credit card calculator instead. If you’ve got time and patience but not much, consider using one of these nifty tools! These handy little programs will allow users like you to get quick answers about potential purchases from your favorite retailers without having them spend hours crunching numbers themselves.
The right credit card is the one that meets your needs
You can find the right credit card for you; you need to compare credit cards online. It would be best if you look for a credit card with a low-interest rate and annual fee, as well as one that offers rewards.
APR can be confusing, but it’s essential to understand how it impacts your credit card. For example, if you’re looking for a new card, it’s best to research APR for the different cards before making your decision. It will help you make an informed decision about which card is suitable for your needs and lifestyle.