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APR or Annual Percentage Rate is basically referred to as the interest rate charged by the lender when the credit card holder ceases to pay his or her outstanding debt during the year. The due payment notices sent by the credit card lenders consist of APR as well along with the interest rate. APR tells the credit cardholder how much they need to owe to the lending institution.
If the interest rate is unpaid, the value gets compounded and adds up to the existing charges. A good credit score keeps the APR charges lower. This rate can be variable or fixed on credit cards. Upon any policy changes or unprecedented situations, the APR fluctuates accordingly.
Based on the balances, credit card APRs are broadly divided into multiple types, namely, Purchase APR, Penalty APR, Balance Transfer APR, and Cash Advance APR. Let’s walk through each of them to get a bigger picture of credit card APR.
1. Purchase APR: Though APR or the Annual Percentage Rate value is paid annually, the compounding effect makes the overall charges higher than the usual. The Purchase APR is computed from the initial day of purchase till you pay your debts back. The interest on purchases are levied and added on your credit card every month.
2. Penalty APR: If you fail to make your payments on time, you’ll be levied with a penalty APR. This value is comparatively higher than purchase APR and cash advance APR. Since the charges are considerably exorbitant, credit cardholders will be very cautious with respect to their debt payments.
3. Balance Transfer APR: If the credit cardholder has any debts or dues, balance transfer APR is levied upon transferring them to the existing credit card account. Generally, the introductory APR for such balance transfers is zero percent.
4. Cash Advance APR: This charge is levied on credit cards from the transaction day. Generally, the cash advance APR is more than 25 percent, which is comparatively higher than Purchase APR. The reason is you are removing cash from your account, hence the higher charges.
If you are a credit card user, then knowing about APR is a must. This rate impacts your overall payment at the end of the year. There are several types of APRs, and knowing the stipulations of this rate keeps the credit card user one step ahead in dealing with their finances.
