Understanding Credit Card Interest Rates: APR, Grace Periods, and More.
APR is everywhere, frequently in offers you see on billboards and get in your mail. Even so, finding out how the Annual Percentage Rate works and how it is calculated can be confusing. At the same time, you may know the general rule that the lower the Annual Percentage Rate, the better. There are many more things to understand about this topic. Want to know about Credit Card Interest Rates? The article will walk you through the Annual Percentage Rate, Grace Periods, and more.
While a comprehensive knowledge of APR and grace period is important, note that these have an impact on your credit profile. You should perform the CIBIL score check free process on the CIBIL Score App occasionally to stay updated!
What is Credit Card APR?
The Annual Percentage Rate is the yearly rate you are charged for carrying a balance. You shouldn’t get confused between a general interest rate and the Annual Percentage Rate because both differ. Your credit card’s Annual Percentage Rate is an annualized representation of the interest rate. Nonetheless, many credit cards compound interest regularly. APR is a determining factor in the overall cost of your credit, and the higher the cost, the higher the repayable amount. Failing to repay means the CIBIL score check free service will show a low score.
Types of APR
If you have carefully read the terms and conditions while getting a credit card, you will see different kinds of Annual Percentage Rates. The different types of Annual Percentage Rates are as follows:
Purchase Annual Percentage Rate
The Purchase Annual Percentage Rate applies to all the purchases you make with your credit card online, in-person, or over the phone. It is the most common interest rate you initially consider when considering credit cards.
Transfer Balance Annual Percentage Rate
If you shift or use the facility to transfer the balance from one card to another, banks will charge you the transfer balance APR. A credit card’s transfer balance Annual Percentage Rate exceeds the Purchase APR.
Penalty Annual Percentage Rate
Suppose you delay your credit card payments- you fail to pay the due amount for over 60 days. In that case, your delay might trigger a penalty Annual Percentage Rate. They are substantially higher than daily Purchase APRs, somewhere around 29.90%. Banks can not charge above 29.90%. Remember that all credit cards don’t have a Penalty APR. Reviewing your credit card’s terms and conditions is advisable.
Cash Advance Annual Percentage Rate
If you withdraw cash with the help of your credit card, banks will charge a separate APR for your withdrawals. Although it is not as high as Penalty APRs, it is higher than Balance Transfer or Purchase APRs. Cash Advance APRs need to have a grace period. You can begin building interest when you get funds from ATM withdrawals.
Introductory Annual Percentage Rate
A few credit cards offer a 0% APR when you open your account. Intro APR is a promotional interest rate for a limited tenure lower than your credit card’s daily APR. It applies to balance transfers, expenses, etc. After the introductory tenure ends, the regular AP will be applicable.
Fixed Annual Percentage Rate
A fixed annual percentage rate stays constant throughout the loan or agreement’s tenure. This type of APR is common in loan products like mortgages and car loans.
Variable Annual Percentage Rate
A variable annual percentage rate fluctuates based on factors like a modification in the prime interest rate, the base rate, and the margin from your credit card issuing company. Such APR can change without notice.
APR on Your Credit Card vs Interest on Your Credit Card
Your credit card APR quantifies the costs spent in borrowing money. The rate of interest and Annual Percentage Rate might be different. For example, you are refinancing or opted for a mortgage. The interest rate is different from the APR of your loan, as the rate of interest signifies the yearly cost of borrowing money. The Annual Percentage Rate considers the charges you face apart from the yearly cost of borrowing money. In the case of credit cards, the Annual Percentage Rate and the interest rate are the same. Your credit card might have a yearly or additional fee while initiating a balance transfer, making late payments, or getting funds through ATM withdrawals, but the APR excludes the fees.
What is a Grace Period?
Banking institutions include a grace period in your credit card agreement. The grace period is when you can repay your balance without receiving chargeable interest. Many banks charge interest regularly with the help of a method called the average daily balance. Suppose you repay your balance, which is around 25 days, and you will not owe any interest on that specific balance. Therefore, repaying the balance before the due date is advisable. Otherwise, you will see negative results when you opt for the CIBIL score check free service.
Conclusion
Understanding APR or Annual Percentage Rate is necessary if you own a credit card. Suppose you still require to plan to carry a credit card balance. In that case, you do not have to worry much about it. But suppose you find that you require to carry a balance on your credit card. In that case, understanding the Annual Percentage Rate will make managing your monthly credit card payments effortless. In addition to understanding Credit Card Interest Rates, APR, Grace Periods, etc., a CIBIL score check free is important with the help of the CIBIL Score App or the CIBIL website.
