Credit Cards And The APR

Since there are virtually an unlimited number of credit card companies, finding the right 1 for you can take some research. All credit card offers will come complete with a list of features that seem to be exclusive to that card. In actuality, most cards offer about the same set of features with only slight variations. All of them will mention the APR -- knowing what that is and how it works is vital.

The All-Important APR

APR stands for "Annual Percentage Rate." It is the amount of money you will pay, expressed as a percentage of your balance, for the privilege of charging purchases and carrying a balance on your card.

The APR can drastically affect your ability to pay off your card, particularly if you carry a balance. The APR attached to the credit card can vary not just from card to card but also according to how and what you purchase.

APRs Can Vary

If you are looking for a cash advance on your card, be aware that the APR here will usually be the highest. The APR for purchases is usually close behind, though. For example, for a cash advance of $200 the APR may be as high as 23%. This is a whopping amount of interest to pay on a relatively small amount of money.

For purchases, however, the APR may be more like 19%. Still pretty high for the convenience of not using cash. That's why it's usually best to use credit cards for emergencies or for purchases that you intend to pay for in full at the end of the month.

Tiered APRs

APRs can also vary according to how much of a balance you carry on your card. These are called tiered APRs because the rate depends upon which balance tier you are on in any given month. For example, a balance of $0-$2,000 may be subject to an APR of 14%, while a balance of more than $2,000 has an interest rate of 18%. Again, it pays to keep your balance lower on these types of cards.

Penalty APR

Then there's the penalty APR. You meet this ogre when you make late payments regularly (meaning more than once in credit card parlance). Your APR can be raised and will affect your entire balance. Moral: Make your payments on time.

Introductory APR

The most popular marketing tool used today by the card companies is the introductory APR. This is a significantly lower interest rate on transferred balances and purchases made during the introductory period. This is beneficial if you carry a high balance on another card at a high APR and can transfer your balance, giving you the opportunity to put more of a dent in that balance during the intro period.

Delayed APR

One thing to look out for, though, is the future APR (or delayed APR) that kicks in when the lower rate expires. This rate can be significantly higher than the intro rate they are offering.

So remember to pay attention to the APR and know what rate will come into play for the card you are considering. Make your choice wisely and cautiously, and you'll be able to use your card before it uses you!