APR, or annual percentage rate, is a way to compare loans from different lenders. It’s also a way to see how much interest you’ll pay for an entire year on your loan. Since APR is the most important factor in determining whether a loan is a good deal, it’s important to know what is APR on a credit card, what APR is considered normal and why it matters. Don’t worry, this article will answer those questions and more.
How Does APR Work?
APR (annual percentage rate) is the cost of borrowing money, otherwise known as the interest rate. It’s calculated by dividing the interest rate by 12 and then multiplying that number by 100.
The APR on your credit card rises or falls depending on how you use it. If you pay off your balance each month and don’t carry a balance from one month to another, you’ll have a low APR because there isn’t any interest being paid on those payments. If you make only minimum monthly payments, however, your rate will be higher since more interest will be charged for those purchases that haven’t been paid off yet over time.
Why Does APR Matter?
APR, or the annual percentage rate, is the interest rate that you pay on your credit card. It is a standard figure used to compare different cards and lending products.
The APR tells you how much interest you would pay if you carried a balance on your credit card for one year.
However, this number does not tell the whole story about how much you will actually end up paying in interest because it does not include other fees or charges related to using your card such as cash advance fees or late payment penalties.
The higher that APR is, the more expensive it can be to borrow money from a bank or credit union with a low-rate introductory offer.
Hopefully, this example from SoFi helps, “Let’s say a person has two loan offers. Each is a $1,000 loan with an interest rate of 10%. With just that information to compare the two, they seem equal to each other. A little more digging, though, will uncover that Offer A has a $100 origination fee while Offer B only has a $50 origination fee — both of which could be calculated and accounted for in the offer’s APR.”
What APR is Considered Normal?
You have a 5% APR credit card, and it doesn’t seem any different than the other cards you have in your wallet. Why is this? The answer lies in how consumers view APR as a way of life.
Many people who live below their means and are careful when they shop may not think twice about using their credit cards. They might use their card to buy groceries or gas without worrying about paying off the monthly balances because they know they are responsible enough to pay their bills on time each month. These people don’t need special offers or deals—they just want something that will help them save money on purchases that matter most to them.
APR is a way to measure the cost of borrowing money. It is expressed as an annual percentage rate and is generally calculated by taking the total amount borrowed and dividing it by the amount of interest paid over time. The lower the APR, the better for borrowers because they are able to pay less in interest over time.