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How to be Smart With APR While Using a Credit Card

Aug 18, 2007
APR stands for Annual Percentage Rate. It is one of the most important numbers that you will find on a credit card application or statement. The reason it is important is because this number determines how much interest you will have to pay on any charges that you carry over on your credit card. It is also important for consumers to understand that even a single card can have more than one APR associated with it.

Here are some examples of how you might find various rates with the same card (or with multiple cards):

You will certainly find an APR for purchases. This is the standard rate that you will pay when you make ordinary purchases with the card and do not pay off the balance within the grace period that the company allows.

You will often find that there is a different APR for cash advances. In most cases, the charge for taking cash is higher than the charge for purchases. In some cases, the cash advance charge can be significantly higher and consumers should always check for this rate before they take cash.

Consumers should also realize that many credit card companies do not allow for a grace period with cash advances or balance transfers. This means that the APR for the cash advance will begin as soon as you take the money and you will have to pay this charge regardless of how quickly you pay back the cash amount taken out.

There can also be other types of APR's associated with your account. For example, there may be a penalty APR. A penalty APR can happen if you are late in your payments. Your credit card company will state the conditions that must be present in order for them to charge this higher rate. Be very careful about this because penalty rates can be very high at times.

You may also find that your credit card company uses what are known as tiered APR's. This is a system in which different rates are applied to different levels of outstanding balances. For example, a company may state that it charges 14% on balances between $1 up to $1000, and that it charges 15% on balances on balances above $1000. As you can see, under this method the more you charge on your card, the higher the percentage rate will be and the higher your monthly bill be as well.

There are also many companies that offer introductory APR deals. These are usually lower rates for new customers but they are temporary. Once the stated period of the introductory rate is over a higher rate usually takes effect. While introductory rates can be tempting, always check for the "regular" rate as well.

Consumers should understand that if a balance is carried over from one month to the next and so forth, even small differences in the APR can add up over the course of a year. Remember that APR stands for Annual Percentage Rate, the rate that will apply on a yearly basis. Use the lower rate cards and you will save money each month.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Compare Credit Cards and Best Credit Cards
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