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Do You Understand Your Credit Card APR?

Oct 16, 2007
You have been researching some credit cards, but you may not quite understand some of the terminology that credit card companies use. You may also have some questions concerning the APR offer you are given in the credit card advertisements you receive in the mail. What is credit card APR anyway, and how will that be charged to me once I get the credit card?

First of all, APR stands for Annual Percentage Rate. This is what estimates the amount you will be paying in interest each year. This, of course, will be an estimate, it will be assuming that you pay all your monthly credit card bills on time, and it may or may not have an expiration date, depending on the credit card company, the offer, and your credit rating.

The difference between the Annual Percentage Rate and the regular interest rate is that the APR is the interest you pay in a year that compounds monthly. In other words, it is the interest of the initial amount. The regular interest rate is just the amount you owe times the original interest rate. Since the APR compounds each month, it ends up being more per year than simply the percentage of the whole principle.

Annual Percentage Rates differ depending on the credit card company that offers it. To be even more confusing, APR is also calculated differently between each company. The calculations are based on several different factors, and some factors are excluded with one company and included with another. It all depends on what your credit card company's policy is for calculating the APR.

Some of the fees that you are charged are included in the APR. There are some fees that are not allowed to be calculated into the APR, some that are allowed but often are not, and some that usually are charged on the APR. Here are a few of the charges that ARE included.

The credit card company will charge you for certain work they have to do when they are handling your account. These fees are based on things that are done on your behalf, like checking your credit, or preparing the documents you need to get a credit card. These are called discrimination fees. These fees are usually set at a certain price for everyone, but differ from company to company.

There is another fee generally charged that pays for opening a credit card account. This is called a loan processing fee. They charge you this fee in order to take care of the things they must do to get you the credit you applied for.

An underwriting fee is what you will be charged when they are determining whether you can be approved for the loan you applied for. They will check the information you give them about yourself and the collateral you put up on your credit card, if any. This pays for any money they spend while deciding whether or not you will be approved and the money it may cost them to lend to you on credit.
About the Author
Court teaches people how to apply for business credit cards and helps people get the best results from their internet marketing services.
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