Get to Know Your Annual Percentage Rate (APR)
Credit companies charge a fee in exchange for letting you carry balances. These are called Finance Charges. If you pay your balance in full each month, you can avoid a Finance Charge on purchases. However, if you pay less than the full balance, a Finance Charge will be added to your account. In other words, carrying a balance from month to month means Finance Charges will add up.
APR is the interest rate, calculated on a yearly basis, which you pay on balances. The APR is the best indicator of what credit costs if you carry a balance. The higher the APR, the more you will pay. Some credit card companies offer lower introductory rates for a limited period of time. After the time period these rates usually go up. To calculate the rate each month, divide the APR by 12. For example, if the APR is 18%, the monthly finance rate on carrying a balance is 1.5%.
Your APR may be tied to a specific rate of interest, such as the Prime Rate. This means your finance rate is "variable"—it could go up or down over time. A fixed APR doesn’t change the way a variable does. However, with advance notice from the card company or if you default on your payments, fixed rates may still change at some point.
Your rate may also change as described in your Card Agreement or upon written notice from the company.
|
|
