An Overview Of Credit Card Interest Rates

What is the thing you notice most when you see a credit card advertisement

? It's the interest rate, also known as the APR. This is probably the most well-publicized factor when it come to credit cards. Many people will look at the different interest rates on the numerous cards available and go for the one with the lowest APR.

APR is without doubt an important thing when choosing a credit card, but it's not the only thing to look for. Understanding credit card interest rates is important.

So, what is a credit card rate or APR? Very simply, credit card rate is the rate of interest that the credit card supplier will charge you with on the amount you owe them. The credit card supplier will charge you an interest only if you don't make full payments in time.

When your credit card bill arrives, it states the full amount of money which you currently owe to the credit card supplier, the minimum payment which they require and a date by which payment must be made. You can either pay off all of the money which you owe or just make the minimum payment.

If you make a full payment (by the due date), you are not charged any interest. However, if you decide to go with the minimum payment or some amount that is lesser than the full amount, the credit card supplier will charge interest based on the credit card rate and the balance amount. This credit card rate is the interest rate that you agreed with them at the time of applying for the credit card. The credit card rate or the annual percentage rate, as is obvious, is an annual interest rate.

The credit card suppliers use this annual credit card rate to calculate the monthly credit card rate and then they calculate the interest on the balance amount that you owe them. The balance amount here is simply = Full amount - (payment made by you). This interest is added to your balance for the next month (at the time of next billing cycle).

If you should make a part payment again, a new balance is going to be calculated and the monthly rate of interest will be applied to work out the new interest. This process continues until the balance is paid in full.

This means that it is possible for a vicious circle to occur, and accounts for why interest rate is an important factor to take into account when deciding on a new credit card.

by: Alex Russell.

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