Commonly abbreviated as APR, annual percentage rate tell us about the interest rate on a credit card along with other charges that are incurred on annual basis. Every credit card company has different offers and APRs can be used to compare the right card without going through complex methods and pulling your hair.
Understanding the concept of APR
You are told the interest that you will pay when you go out looking for a credit card. The interest is the cost you have to pay on the borrowed money. Consider that you used INR 10,000 and interest was 15% per annum, then after a year you will have to pay INR 11,500 to clear your borrowings.
The interest range of credit cards floats from 6% to 50% while the average credit card charges about 18% or 19% the higher rate of interest are for those who have bad credit score or a bad repayment history.
Interest rates in India are usually calculated on per annum basis but charged on per month basis. The interest period may vary from bank to bank.
You are going to have a higher APR if your credit card also charges an annual fee.
Don’t get intimidated by these terms. APR is one of the easiest ways to compare different credit cards and it is also used to compare mortgages and loans.
Two types of APR
You should consider both types of APRs while choosing a credit card:
- Representative APR (advertised APR)
- Personal APR
Introduction to Representative APR
All the companies issuing credit cards have to display a ‘representative’ APR to advertise their cards. In theory, more than 50% of the people, are approved by these lenders, should get the credit card at the representative APR. But if you are not offered the representative APR then you are more likely to be offered a personal APR. Personal APR offered is higher than representative APR, generally.
Credit card companies have to give representative examples of credit card deals on their advertisements to obey industry rules and regulations. A representative APR has to take in account the annual interest rate you will be charged on everyday spending tagged with any extra fees like annual fee or late payment fees.
A representative APR is calculated with certain assumptions and on an assumed credit amount. That will not tell you what credit limit you will be offered but will give you an idea to assess your borrowing costs. Remember, the hoardings show the rates on purchases, other transactions share a different interest rate.
Introduction to Personal APR
This is the APR rate that you are offered by the credit card company on the final receipt of your application. If everything is fine then it should be the same as the representative APR. Though, the personal APR may vary from person to person on the circumstances.
The personal APR has to depend on your credit history a resultant of your credit score. Not only past credit behavior, but your credit score can be influenced by the non-repayment of bills of electricity and telecom companies. If they are not paid on time then the marks will be left on your credit report. The defaults will stain your credit report for at least 6 years. But serious debt issues like bankruptcy or court judgments will never leave the mark.
Other factors are age, credit agreement history, do you own a home, employment status, listing on electoral roll etc. Just remember, the better your credit history the lower your interest rate.
APRs and 0% credit cards
On your hunt of a credit card you will come across various banks offering you 0% interest on either purchases or balance transfers for a limited time. You won’t have to pay the interest if you use this card in the defined time. However, you should pay at least a minimum repayment for that period of time.
You won’t see a zero APR as when the period will get over you will have to pay the interest and that will be included in the APR. Not making minimum payment may leave bad impressions on your credit report, you will have to pay late fee when the offer expires and the offer also expires.