When we discuss Credit Cards, the term 'Annual Percentage Rate (APR)' is frequently mentioned but often
misunderstood. As a critical factor in financial products, understanding the meaning of APR is essential for
Credit Card users. This comprehensive guide will explore the concept of APR on Credit Cards, its types and its
implications.
What is APR on a Credit Card?
The Annual Percentage Rate on a Credit Card refers to the annual interest rate levied on borrowed amounts. It
includes the cost of borrowing, expressed as a percentage. APR can be fixed or variable, with variable rates
fluctuating based on market conditions. If you carry a balance, the APR determines the interest you pay. As an
example, with an 18% APR, carrying a ₹10,000 balance would generate ₹1,800 in yearly interest if not repaid.
Varying APRs apply to purchases, transfers, and advances.
What is the function of the APR in a Credit Card?
APR represents the cost of borrowing on a Credit Card. Unlike a simple interest rate, APR includes additional fees
and costs associated with a Credit Card. This presents a more comprehensive picture of what you'll have to pay.
In essence, the APR on a Credit Card dictates the annual cost of carrying a balance on that card.
Different types of Credit Card APR
Credit Card APR can vary, and understanding these variations is crucial for managing your finances effectively. The
most common types of APR include -
1.Purchase APR: Applied to regular purchases
2.Cash advance APR: Higher rates are applied when using a Credit Card for cash advances
3.Penalty APR: Potentially applied when violating Credit Card terms, like late payments
4.Introductory APR:: Lower rates offered for a limited time after opening a new account
5.Fixed vs variable APR: Fixed APR remains constant, while variable APR can fluctuate based on the
prime rate
What is a good APR for a Credit Card?
A "good" APR depends on several factors, including your credit score and the prevailing market rates. Generally, a
lower APR is preferable, especially for those who maintain a balance on their cards.
Axis Bank offers a variety of Credit Cards with competitive APRs. These
cards come with numerous benefits, including customisable rewards and cashback options, lifestyle perks like
lounge access and dining discounts, balance transfer facilities and EMI conversion options. Axis Bank's cards
are designed for global acceptance, enhanced security and easy online management, making them a smart choice for
those seeking a balance of cost-effective APRs and valuable cardholder benefits.
How are Credit Card APRs calculated?
Calculating Credit Card APR involves dividing the annual rate by 365 to find the daily rate, and then multiplying
this by your average daily balance. This calculation shows the interest accrued daily, which is then added to
your monthly statement. Understanding this calculation helps in managing Credit Card APR to save money.
Fixed APR vs Variable APR
When choosing a Credit Card or loan, understanding the difference between fixed and variable APRs is crucial. A fixed
APR stays constant throughout the loan term, stabilising your monthly payments. This predictability can benefit
budgeting, as you won’t be affected by market interest rate fluctuations. However, fixed APRs might start higher
than variable rates, and you won’t benefit if market rates drop.
On the other hand, a variable APR Credit Card changes with market interest rates, often tied to an index like the
prime rate. That means your interest rate and monthly payments can increase or decrease over time. Variable APRs
typically start lower than fixed rates, offering potential savings initially. However, they carry the risk of
rising rates, which can lead to higher costs in the long run.
Difference between Credit Card APR and interest rates
While often used interchangeably, APR and interest rates aren't the same. The interest rate is the cost of borrowing
the principal amount, while APR includes the interest rate, as well as charges and fees associated with the
card. Thus, APR provides a more accurate cost of the Credit Card.
Managing Credit Card APR to save money
Managing your Credit Card APR effectively can lead to substantial savings. Credit Card APR reduction tips include:
- Paying balances in full each month to avoid interest.
- Choosing cards with lower APRs, like Axis Bank’s offerings.
- Understanding fixed vs variable APR to predict future costs.
- Taking advantage of introductory rates but being aware of their expiration.
- Negotiating for Credit Card APR reduction if you have a good payment history.
Credit Card APR vs introductory rates
Introductory rates are usually lower APRs offered for a limited period after you apply for a new Credit Card. It's
crucial to understand when these rates expire and what the standard APR will be afterwards to avoid unexpected
costs.
APR impact on Credit Card payments
APR directly impacts the amount you pay in interest when you carry a balance. Higher APRs mean higher costs.
Therefore, finding the lowest Credit Card APR can significantly affect your monthly payments and overall
financial health.
Finding the lowest Credit Card APR
To find the best low APR Credit Cards, compare offers from different banks. For instance, Axis Bank provides
competitive rates. Consider your credit score, as this influences the APR you're eligible for. You should also
factor in fees associated with the card, as they contribute to the overall cost.
Conclusion
Understanding APR is key to effective Credit Card management. By grasping the nuances of various APR types, their
calculation methods and their influence on your payments, you're empowered to make smarter financial choices.
Axis Bank stands out with its assortment of Credit Cards. It features competitive APRs, aligning perfectly with the
needs of those aiming to maximise their Credit Card benefits. The most effective strategy for managing Credit
Card APR is consistent: pay off your balance monthly to dodge extra interest and fees, ensuring your Credit Card
works for you, not against you.
FAQs
Is APR charged monthly?
No, APR on a Credit Card is not charged monthly. Instead, it represents the yearly interest rate. However,
Credit Card companies divide the APR into a daily or monthly interest rate, which is applied to your
outstanding balance if you don't pay your full statement amount.
How to calculate APR?
To determine the APR, add loan fees to the interest, divide by the principal amount and then divide by the
loan term in days. Multiply by 365 and then by 100 to express it as a percentage, showing the total cost
of borrowing.
Is there a difference between APR and interest rate?
Yes, there is a difference between APR and interest rates. The interest rate refers only to the cost of
borrowing the principal amount. APR, however, includes both the interest rate and additional fees or
costs, offering a more comprehensive view of the total borrowing expense.
How does APR work?
APR, or Annual Percentage Rate, is the interest charged on a Credit Card balance if not fully paid by the due
date. For example, if your card has a 24% APR and you carry a ₹10,000 balance, you will pay about ₹200
in monthly interest (24%/12 months).
Can you avoid APR fees?
Yes, you can avoid APR fees by paying your Credit Card balance in full each month before the due date. This
prevents interest from accumulating on your balance, as APR only applies when there is an unpaid amount
carried over from one billing cycle to the next.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank
Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by
the reader for taking any financial decisions based on the contents and information. Please consult your
financial advisor before making any financial decision.
