What is APR? And what is considered low for a credit card?
Every credit card has one but what exactly is an APR? Most people know that it is a figure that they can use to compare credit cards with each other to find the best card, but what does it do? What does it mean? If you have ever been unsure what an APR is and does then this article is for you. Alternatively if you want to know what a good APR is to have on a credit card then you will also find that here.
APR stands for Annual Percentage Rate and is the overall rate of the card. This figure includes the interest rates themselves as well as any one off fees that you may be expected to pay and so on. It is different to the monthly interest rate because this figure doesn't include the fee etc. In the days before APRs companies could make their card seem better than it actually was by not disclosing all of the extra costs. Basically a card could look like a low APR credit card even if it wasn't.
Before displaying the APR became a legal requirement it was possible for credit card companies to confuse consumers through clever mathematical manipulation. They could make a bad card seem better than it actually was. Also it was possible for them to leave out annual fees making the card look even better. Then APRs were made mandatory to protect customers and to make the market transparent and more honest.
Nowadays all of the tricks above are gone because of the use of APR. The APR shows any fees and interest that will be charge in a very clear format, one that has been standardised, and that everyone, at least on the surface, understands. However the APR doesn't mean that this is the actual amount that you need to pay in a year. For example, if you spend a £1000 over a year you do not pay back £1100 on 10% APR card. If you pay the money off quicker you will pay less than the ten percent in the example above. If you pay it off slower you end up paying more. What's more the APR changes depending on how you use the card. For example the APR on card purchases is different to the APR on cash withdrawals.
So what is a low APR credit card? Well the standard APR at the moment stands at around 16 to 17% and anything less than this could be considered a low APR credit card. Anything lower than 10% is going to very good and anything approaching 5% is going to be awesome, although there aren't really that many credit cards that approach the 5% mark. Obviously the higher the APR the more money that the credit card company makes so low APR cards are going to be far more rare than the standard rate cards. Two other things that need to be mentioned are that lenders do give introductory offers that give a lower APR for a period of time and that a higher APR card may have some features that make them better at the end of the day.
Finally low APR credit cards are generally more difficult to come by than their standard APR cousins. People are only accepted for these cards if they have a strong credit history. This is because the interest is what makes the credit card companies money and obviously they want to make as much as they can. If you want a low APR credit card then it may be best to work on your credit rating first to improve your chances of being accepted for one. Also remember that, as mentioned above, it is always worth examining other features of the card as some of the higher APR cards may turn out better for you as an individual.
APR stands for Annual Percentage Rate and is the overall rate of the card. This figure includes the interest rates themselves as well as any one off fees that you may be expected to pay and so on. It is different to the monthly interest rate because this figure doesn't include the fee etc. In the days before APRs companies could make their card seem better than it actually was by not disclosing all of the extra costs. Basically a card could look like a low APR credit card even if it wasn't.
Before displaying the APR became a legal requirement it was possible for credit card companies to confuse consumers through clever mathematical manipulation. They could make a bad card seem better than it actually was. Also it was possible for them to leave out annual fees making the card look even better. Then APRs were made mandatory to protect customers and to make the market transparent and more honest.
Nowadays all of the tricks above are gone because of the use of APR. The APR shows any fees and interest that will be charge in a very clear format, one that has been standardised, and that everyone, at least on the surface, understands. However the APR doesn't mean that this is the actual amount that you need to pay in a year. For example, if you spend a £1000 over a year you do not pay back £1100 on 10% APR card. If you pay the money off quicker you will pay less than the ten percent in the example above. If you pay it off slower you end up paying more. What's more the APR changes depending on how you use the card. For example the APR on card purchases is different to the APR on cash withdrawals.
So what is a low APR credit card? Well the standard APR at the moment stands at around 16 to 17% and anything less than this could be considered a low APR credit card. Anything lower than 10% is going to very good and anything approaching 5% is going to be awesome, although there aren't really that many credit cards that approach the 5% mark. Obviously the higher the APR the more money that the credit card company makes so low APR cards are going to be far more rare than the standard rate cards. Two other things that need to be mentioned are that lenders do give introductory offers that give a lower APR for a period of time and that a higher APR card may have some features that make them better at the end of the day.
Finally low APR credit cards are generally more difficult to come by than their standard APR cousins. People are only accepted for these cards if they have a strong credit history. This is because the interest is what makes the credit card companies money and obviously they want to make as much as they can. If you want a low APR credit card then it may be best to work on your credit rating first to improve your chances of being accepted for one. Also remember that, as mentioned above, it is always worth examining other features of the card as some of the higher APR cards may turn out better for you as an individual.
About the Author:
The financial author Ben Harper regularly posts articles on financial based websites. Read more about the UK Card and Compare credit card here.
posted by Debt Consolidation Loan at
8:07 AM
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