Credit cards and their intricacies can be overwhelming for a layman. Such are the technicalities linked to credit cards that any person can be left baffled.  It is imperative to understand the crux of the jargons associated with credit cards to be fully able to make financial decisions.

APR or Annual Percentage Rate is one such technical term that is bound to arouse confusion.  Become aware of the most minute features of APR, ranging from its definition to the manner in which the credit card companies determine their APR. One can even find the best 0 APR credit cards in the market, which is nothing less than a treasure for the current as well as aspiring credit cardholders.

What does one comprehend by the term APR?

Every credit card comes with an interest rate that is calculated on a monthly or yearly basis. This interest rate, when enumerated for a year is referred to as the Annual Percentage Rate. A common question that crops up is, “what is 24% APR on a credit card?”

The 24% APR is the interest rate charged over a time frame of 12 months, for availing the services of a credit card. The yearly interest rate rounds up to 24% if the monthly rate is 2%. A vital point to be noted is that the most common form of APR is only charged when the balance rolls over from one month to another, on non-payment or late payment of dues.

Factors that govern the determination of APR by credit card companies

The credit card issuing financial institution thoroughly scrutinizes the credit score of the individual. Shambolic credit history can result in a heightened APR. Hence, it is advisable to practice clearing the dues on time to keep the credit score healthy.

This should include not only the minimum due payment but the entire amount in full. Any outstanding balance gets subjected to APR if it is carried over to the next month. Whether one is applying for a new credit card or already owns one, a noteworthy credit score aids in keeping the interest rates low.

However, there’s not only one kind of APR. We can classify APR into four distinct types. All the four types vary from one credit card issuer’s policies to another; not to forget the very vital credit score of the customer.

 

  • Purchase Annual Percentage Rate: This is the most common sort of APR. Whenever we apply the term APR, we generally refer to the Purchase Annual Percentage Rate. This comes into enforcement once the credit cardholder fails to pay the due amount in totality. The interest starts adding daily from the day some purchase is secured via the credit card. Let’s simplify the calculation of this APR by credit card companies by  first  answering the most common question, “what is 24% APR on a credit card?” 

 

Suppose the billing cycle lasts for 30 days and 1,000 INR is carried over from the last month. Now, a purchase is made through the credit card on the 12th day of the month worth 500 INR with the APR being 24%. 

So, the balance for the first 12 days is 1000 INR

And, from 13th to 30th day is 500 INR

Total daily balance of the month =(12*1000)+ (18*500)=  21,000 INR

Average daily balance of the month = 21000/30= 700

Daily interest rate= APR/365, 

                             =0.24/365 (in this case APR=24%)

                             =0.00065% (approximately)

 

  • Cash Advance APR: Some banks charge a higher APR on cash withdrawals. The Cash Advance APR is also applied from the date of withdrawal(on a daily basis), till that amount is repaid.

 

 

  • Penalty APR: Penalty APR can be charged by banks if individual defaults on paying the full amount for two consecutive months.

 

 

  • Balance Transfer APR: Balance Transfer APR is incurred on transferring the dues of one credit card into another. 

 

The rate of different kinds of APR rests upon the discretion of the bank, which usually considers the customer’s credit score. Then there are the best 0 APR credit cards available that do not charge any interest on balance transfers for a limited period.

The Bajaj Finserv RBL Bank SuperCard can be a great asset to any cardholder, as it boosts the power of four cards in one — loan, cash, EMI, and credit cards. There’s no interest charged on cash withdrawals from ATMs using this SuperCard for up to 50 days.