Everyone who uses credit card might notice a term called “APR,” Annual Percentage Rate. But what exactly does this APR means?
Annual Percentage Rate in credit card refers to how much you have to pay when you are borrowing money from the bank. Remember that if you use your credit card to make any payments and you don’t repay your bills within the interest-free period, the bank would charge you certain interests, and these interest are actually calculated based on APR. That is, you are only charged by APR when you carry credit card balances from month to month.
If you pay your bills on time and do not want to borrow money by using your credit card, APR has nothing to do with your life.
Most credit cards have lots of types of APR and these rates vary depend on the card issuers and your credit rating as well as your income. If you are in the good credit rating, or your income could demonstrate that you are rich, the bank would offer you a lower APR.
As APR’s name “Annual Percentage Rate” refers, APR is calculated yearly. If you have a credit card with 12% APR, you have to divide this rate by 12 and realize that your month rate is around 1%. Because months also vary in days, credit card would break down APR into a daily periodic rate (DPR), which is APR divided by 365.
For 12% APR, the daily rate would be 12% divided by 365, which is 0.03%. This is highly related with your credit card bill, which is the daily rate multiplied by your daily card balance (the total amount that you owe in your credit card).
The daily card balance, if you don’t delay any repayment after interest-free period, is calculated in a monthly period that you set. Thus, even though APR might have nothing to do with those who repay their bills on time, APR does have lots of invisible role in your daily payments.