May 27, 2005

When most of us apply for a credit card we are told to try and get plastic with a low APR, this has to be done to make sure that we save cash and not have to pay over the top interest rates. But what is APR? APR (Annual Percentage Rate) is added to your credit card bill when you have exceeded the grace period in which your credit card gives you to pay of your outstanding balance, this will come in the form of say a credit card APR of 17.9%, this will be split into 12 monthly APR payments of roughly 1.5% and will be added to your debt each and ever month, until the debt is paid in full. It will also be added to any fees or charges that you may have inflicted upon you.

There are many different ways in which APR can work on your credit card; you may think that the basic APR you had when you bought into the credit card will be an umbrella on all your workings within the card, but yet you may be charged a different level of APR for each of the elements in the card; such as you may have an APR of 17.9% for any purchases tat are made with the card, an introductory period of 0% on any balance transfers that you have made and you can also hold a higher APR for any cash withdrawals from an ATM.

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The APR on your credit card may also hold a penalty clause, whereby if you fail to pay or make any late payments to your credit card balance, it could incur a the penalty clause, which will put up your APR as you could the be seen as a bad risk customer and to protect themselves the credit card companies have put this clause in so that it will be a deterrent and by raising your APR it is making sure that it will receive it’s money back.

Tiered APR’s can also come into play on some; these are worked out by having an APR of for example 15.9% on the first £500 on your statement, this may rise or fall once you have gone over the stated amount of £500 with the first APR then going to say 17.9% or it might drop lower than the original 15.9%.

There are also that will have a Fixed or Variable rate of APR attached to them. Fixed APR means what it says this will be the rate of interest that you will pay for the duration of the debt, though the credit card company can alter it but they have to inform you of any changes before they make them. A Variable APR is a bit more complex, this APR will move from time to time depending on the state of the current financial state of the country, though look on the bright side it can also go down, meaning more spending power for you.