The Ultimate Guide to Credit Cards

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Basics of APR

A credit card’s interest rate is the price you pay for borrowing money. For credit cards, the interest rates are typically stated as a yearly rate, called the Annual Percentage Rate (APR). Where it can become a little more complicated is when the credit card has multiple APRs that apply to it. The interest rate you are charged will depend on the rules and policies of your card company. Credit card companies must follow legal guidelines established by federal government regulators.

While APRs may sound confusing and complex on the surface, once you know how to find your card’s APR and you know which APR applies to you, it is relatively simple. The problem for many cardholders, however, is that they don’t grasp the concept of the APR. Consumers either don’t know what rate they are being charged or how it relates to their own consumer behavior.

Fixed vs Variable Rates

For starters, it’s important to know that there are two categories of APRs; they can be variable, which means they can change by going up or down over time, or they can be non-variable, or fixed. A fixed or non-variable APR remains the same month after month. You will usually have an APR that is relatively stable – as long as you don’t miss a payment or violate other terms of your cardholder agreement.

Credit card companies do, however, almost always reserve the right to change your rate – even if it’s a non-variable one – based on such things as economic conditions that impact the financial markets. Granted, they have to notify you before they make a change like that, but it is still important to know that no credit card rate is set in stone forever.

How to Find a Credit Card’s APR

In order to figure out what your credit card’s APR is, consult your card member agreement where the terms and conditions are located. The APR will usually be found on a chart at the top of the page. You’ll see the rate next to a description of what kind of transaction is subject to that particular APR. If you are online and thinking of applying for a credit card, you may have to look pretty hard to find a section, tab, or website link labeled, “terms and conditions,” “rates and disclosures,” or “pricing and information.” Go there and scroll until you find the box with a title like “Disclosures” or “Interest Rates and Fees,” and that’s where the various APRs for the card will be disclosed.

Different Types of APRs

Purchase APR

For most consumers the most important APR is the one charged for purchases. This is also the one that credit card companies usually refer to in their advertising. The purchase APR is the interest rate that you will be charged for purchases made with the credit card that are not repaid in full before the end of the credit card’s grace period.