O APR Credit Cards Defined

O APR Credit Cards Defined

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O APR Credit Cards DefinedWhat does APR Mean?

APR, which stands for annual percentage rate, is an economic variable used to describe the current interest rate for a whole year. The APR is listed as a percentage and typically attached to a credit card to describe the additional payments (used to satisfy the individual’s interest obligation) that the borrower is forced to pay to for the use of credit.

The APR is a finance charge expressed as an annual rate and takes the form of two specific definitions: the nominal APR and the effective APR. The nominal APR is the simplified interest rate delivered as a yearly percentage while the effective APR is the compound interest rate, which includes a fixed fee.

The nominal APR is calculated as the rate delivered for a payment period multiplied by the number of payment periods in that specific year.

The APR is delivered as an annualized rate rather than the monthly fees or rates that are typically applied to mortgages or other long-term loans.

 In regards to credit cards, the APR refers to the amount you will pay in interest per year. The APR on a credit card will fluctuate based on a number of factors and variables, the most critical of which is the holder’s credit history.
Those individuals with higher credit scores will be awarded with a lower APR. The lower APR is awarded to an individual with a higher credit score because of the mitigated risk of default—the issuer of the card views the individual as a safe investment and therefore grants the individual with the ability to possess 0 APR credit cards or credit cards with low APRs. The variables that calculate the APR can fluctuate upwards to 50%, meaning some cards may carry an APR of 50% while others may have an APR of 0.

The APR is only attached to the remaining balance of a credit card. If the individual fails to pay the complete balance owed and opts instead to pay the minimum balance, the APR will be attached to the remaining balance and then carried over to the following month.

What is a 0 APR Credit Card?

When an individual applies for 0 APR credit cards they are looking to obtain a credit line where the attached annual percentage rate is zero. As a result of the 0% APR, the individual can save a substantial amount even if he or she makes minimum payments. That being said, the majority of new credit cards are issued with a fixed timeframe of 0 APR. These cards are used to entice borrowers who are looking to lock-in 0 APR credit cards regardless of the timeframe.

Those lenders that issue 0 APR credit cards for a fixed timeframe typically do so for the borrower’s first year of use. After this time, the APR is adjusted based on the individual’s credit history and finances and is then attached to the remaining balance (if applicable) of the card.

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