What is a good APR? I do not have to pay anything if the APR is 0%?

APR

You may have seen the term APR, or Annual Percentage Rate, used about everything from mortgages and car loans to credit cards. In this article, we look at credit card APRs, which you’ve likely seen on your monthly statements.

What is APR?

technically speaking, APR (Annual Percentage Rate) is a numerical representation of your interest rate. In other words: The percentage you will pay in a year to borrow money.

APR stands for Annual Percentage Rate.

When deciding between credit cards, the APR can help you compare how expensive a transaction will be on each.

It’s helpful to consider two main things about how the APR works: how it’s applied and how it’s calculated.

How does the APR work?

Credit card companies generally offer a grace period for new purchases. If you only make purchases and pay the final balance each month before the due date, you pay only the amount you owe without interest.

However, if you choose to carry a balance on your card, you pay the agreed interest on your outstanding balance.

What is a good APR for a credit card?

In part, it depends on the current interest rate at a given time. Lenders will take the Prime Rate or other standard rate and then make adjustments to that rate to increase their margins.

So anyone with debt now, when interest rates are low, has a very different standard for what makes a “good” APR than someone had in the high-interest 1980s.

The APR available to you will also depend on your credit.

If “good” means best available, it will be about 12% for credit card debt and about 3.5% for a 30-year mortgage.

But again, these numbers fluctuate, sometimes from day today. And in the case of mortgages, the “best” APRs are often available on 15-year mortgages and adjustable-rate mortgages, which may not be a good financing option for every consumer.

Many forms of debt come with more than one APR.

How to calculate the APR?

Many variable interest rates start by using an index, such as the US Prime Rate, and then add a margin. The result is the APR. Variable rates can change if the index changes and some banks also offer a fixed APR.

Here is an example of how the rate is set:

What is the Cash Advance APR or a cash advance?

A cash advance (you will find them as cash advance in English) allows you to use your credit card to obtain a short-term cash loan at a bank, ATM, or ATM.

Unlike a cash withdrawal from a bank account, a cash advance has to be paid back, just like anything else you put on your credit card.

Think of it as using your credit card to “buy” cash instead of goods or services.

The cost of borrowing cash from your credit card tends to be higher. There may be a different APR for checks or certain types of cash advances.

There are no grace periods.

And what is the Penalty APR?

Penalty Annual Percentage Rates (APRs) are high-interest rates that can be triggered by the slightest infraction, such as a single payment received a day late.

This APRs often range from 20% to 35%.

Lenders significantly increase borrowers’ interest rates and profit from their mistakes.

Introductory or promotional APR? Introductory APR

The introductory annual percentage rate or Introductory annual percentage rate in English is a low rate offered by a credit card company as an incentive to apply for the card.

The APR will go up after the introductory period has ended.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 require that introductory periods must last at least six months. The introductory rate is also known as the teaser rate.

This is the APR that the issuer will charge new cardholders on balances over a specified period.

It can apply to specific transactions, as well as balance transfers, cash advances, or any combination.

Features a lower APR for a limited time.

APR vs. interest rate: know the difference

The APR includes additional charges (or discounts) along with interest. For example, a personal loan may have an origination fee or a mortgage may have closing costs.

When it comes to loan costs, the APR, rather than the interest rate, gives you the big picture.

In addition, all lenders are required by law to disclose the APR for their loans and credit cards, following the Truth in Lending Act of 1968.

This law protects consumers by requiring lenders to disclose the true costs of the loan.

Thanks to this law, you can compare loans and mortgages at a glance and get a clear picture of your long-term costs

By aamritri

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