APR On Credit Card - APR Meaning & Types of APR

APR is one of the most important components in a credit card. Read on to know everything about it

Annual percentage rate (APR) is a common feature on monthly credit card bills. Yet, few people know about it. The (APR) refers to the interest charged on a credit account. Anyone who uses a credit card should understand how Annual percentage rate (APR) works, when it may be applied, and how sound financial practices can help you avoid it.

What is APR on a credit card?

If credit card holders do not pay their bills in full, they must pay interest in their outstanding balances. Essentially, it is the interest on credit cards. If you read the terms and conditions document, you will see both the monthly interest rate and the APR included in it.

What is the function of the annual percentage rate?

APR is calculated for credit cards using the formula:

Credit card interest = [daily rate] x [total daily balance] x [number of days in billing cycle]

• Divide your credit card's transaction APR by 365 to get the daily rate. If your annual percentage rate is 18%, your daily rate is .00049%.
• Add up your amounts at the conclusion of each day of the billing cycle and divide the total by the number of days in the billing cycle to get your average daily balance. This is your daily average balance.
• Next, multiply your daily interest by your daily average balance, and multiply that sum by the number of days in the billing cycle. Most issuers compound their interest daily.

How much could you end up spending on APR?

No interest applies if you pay your debt in full and on time every month. You will also get a grace period within which you are supposed to repay the entire amount that you have taken from the bank. It is a 21-day period that begins at the conclusion of the billing cycle and lasts until you have paid off your new debt in full without incurring interest charges.

However, if you have a debt on your credit card, you will be charged with interest. Even if you only have a balance for one month, you will give up your grace period for the next few months.

Let’s take a look at the different types of annual percentage rate

APR has many forms, including:

Purchase APR

This is the interest rate that is charged on all purchases made with your card, whether they are done online or in person.

Introductory APR

A special interest rate that is less than the card's usual APR for a limited time, occasionally as low as 0%. It can be used for both purchases and balance transfers. When the promotional period ends, your balance will be subject to the normal APR. During this time, your credit card works as an interest free credit card.

Cash advance APR

This rate is often greater than your purchase APR and does not include a grace period. It is also used to describe convenience checks.

Penalty APR

This rate applies to payments that are late or returned, and it can be as high as 29.99%. Before your credit card issuer removes the penalty APR, you may need to make multiple consecutive on-time payments. If you are over 60 days late on a payment, the penalty APR may be applied to your existing balance as well.

Have these annual percentage rates changed your mind against getting a credit card? Keep in mind that having a credit card comes with its range of benefits. Always go with a low interest credit card, such as the one issued by Metra Trust. The card is packed with all the benefits you need in a credit card. The interest rate on the credit cards issued by Metra Trust have comparatively low interest rate, making it affordable for everyone. To know more about Metra Trust credit cards visit the official website or mobile app. Select and apply for credit card that suits you.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.