Understanding Your Credit Card Or Loan APR

APR Breaking It Down annual percentage rate Sources: The Loan People, Wikipedia You are no doubt already aware that APR stands for, what might not be so clear to you is what exactly this is. In simple terms, a the APR (Annual Percentage Rate) is a measure of how much a given loan or mortgage will cost you in interest per calendar year. The figure for the APR takes into account all of the normal costs associated with the loan, such as arrangement fees, any annual charges (which may be the case with credit cards) along with other such costs so as to provide a clear, overall figure for the total cost of the loan. loan payment schedule parts of total cost $39 Effective Compound interest APR $10 Loan fees $100 $39 + $10 = 49% Loan amount $100 Remaining loan Amount Paid Loan fees time Types of Rates / APRS: The Purchase APR is the rate incurred for purchases made on your credit card. The Balance Transfer APR (or just 'Transfer APR') is the rate incurred to the balance transferred from another credit card. (Sometimes people transfer their balance from one card to another in order to get a lower APR, thereby lowering their payments). The Cash APR (also known as a Cash Advance APR) is incurred when you use your credit card for cash advances or at an ATM. The Default APR is the rate that, in most cases, all of the above rates (i.e. Purchase APR, Balance Transfer APR, Cash APR) will increase to if you do not pay your credit card bill on time or go over your credit limit. Be aware of the Default APR since it can cost you a lot of money. You get approved You close your account INTRO APR REGULAR APR START END START END DEFAULT APR Your APR can change to the Default APR at any point, if you miss payments and/or go overlimit! At it's most basic, COMPOUNDING refers to earning interest on previous interest. All investors want is to maximize compounding on their investments, while at the same time minimize it on their loans. APR and APY: Why Your Bank Hopes You Can't Tell The Difference? APR is the annual rate of interest without taking into account the compounding of interest within that year. APR = Periodic Rate x Number of Periods in a Year APY does take into account the effects of intra-year compounding. APY = (1+ Periodic Rate ) # Periods %3D This seemingly subtle difference can have important implications for investors and borrowers. Calculation methods (credit cards): Type of balance How it's calculated Example Average daily balance The company averages your daily balance. For instance, if you charged $100 on the first day of June and charged an additional $200 on the 16th, yo That number times roughly one-twelfth your annual percentage rate, or APR, equals your monthly finance charge. Interest may be calculated on a daily or monthly basis. verage daily balance would be $200. Daily balance The company calculates the actual balance you carried each day of your billing cycle and multiplies it by roughly 1/365th of your APR and adds it together. A credit card practice where the consumer is charged interest on debt already paid. A cardholder begins a billing cycle with a zero balance and charges $500 on a credit card. They make an on-time payment of $450. With double- cycle billing, they would be charged interest on the $500 -- instead of the $50 still owed -- in the next billing cycle. Two-cycle balance Previous balance The bill will show beginning balance and ending balance for your account. The finance charge is based on the outstanding balance at the beginning of the billing cycle. loan amount