Updated on October 4, 2023
The Annual Percentage Rate (APR) is a representation of the yearly expense associated with the interest on your outstanding credit card balance. It encompasses the cost of the interest incurred by the cardholder on amounts carried beyond the payment due date. The APR includes the interest rate that’s applied to your outstanding balances, as well as any annual fees, late payment fees, or other charges that may be associated with the card.
Understanding APR in detail
APR is presented as an annualized percentage, meaning it shows the total cost of borrowing over the course of a year. This allows you to easily compare the cost of credit across different cards or loan options. Some credit cards have a variable APR, which can change based on factors like market interest rates. Others have a fixed APR that remains consistent over time. Variable APRs might start lower but can increase if interest rates rise.
Importance of APR
Comparing APRs is essential when choosing a credit card. A lower APR means you’ll pay less in interest and fees. Additionally, if you’re carrying a balance, understanding the APR can help you estimate how much interest you’ll be charged each month. High APRs can significantly increase the cost of borrowing, especially if you’re carrying a balance over several months. It’s wise to prioritize paying off high-APR cards to avoid accumulating excessive interest charges.