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Comparing Credit Card APRs
By Stephen Pratley
Summary
Making an informed decision when choosing a credit card can be a bit of a challenge: there are so many tempting offers. Some insights into the card's features and the various charges for the different transaction types can go a long way in helping you get the best out of the card.
Use of Credit Cards
Having a credit card can be a boon in more ways than one, as it can make shopping easy and also provides scope for substantial savings by way of interest and reward points. You'll want to make an informed decision and go for one that meets your needs in every way possible.
Features to Look For
One of the essential things to remember when making a choice of credit card, is to be clear as to how you're going to use it. If you intend to pay your monthly bill in full, and you are not looking specifically to accumulate reward points, then your best bet would be a card that offers a longer grace period, and comes without an annual fee.
What are APRs
If on the other hand you envisage a situation where you would be carrying over a part of the balance to subsequent months, a card with a lower interest rate (referred to as an APR or annual percentage rate) is the one that's right for you. The annual percentage rate (APR) is the industry's accepted term to indicate the rate of interest (annual) on the balance that you carry over to the next billing cycle, or on a cash advance, or when you transfer a balance to/from another card. If you plan on using the card for cash advances occasionally, it's best that you seek out a card that charges lower rates of interest on cash advances and carries a low APR.
Multiple APRs
The very same credit card may carry different APRs for different transactions, so the rates may vary based on the usage, such as for (i) purchases made, (ii) for cash advances, and (iii) for balance transfers. In general, the APRs for cash advances and balance transfers would be higher than the rates chargeable on purchases (for example, 14% for purchases, 18% for cash advances, and 19% for balance transfers). APRs may also vary when there is a delay in payment of an amount due on the card beyond a certain period. This will be specified upfront by the issuer.
Some cards may offer a 'delayed APR' which may defer the charging of interest for a given period. It would be wise to take note of the APR that may be charged from the date specified. Card users who are likely to carry over a part of the balance to the subsequent month/s, will do well to bear in mind that even a small difference in the APR can make a significant impact on the total amount they will pay over a year by way of interest.
Fixed and Variable APRs
Some credit cards carry a fixed APR that does not vary with transaction type or usage. However, the card provider may choose to re-fix the rate over a period of time, but will notify you in advance, of their intention to do so. Variable rate cards, which are generally the norm, have APRs that are amended from time to time. Changes in APRs will usually be linked to bank base lending rates. Any change in this rate is thus likely to impact the APR on your credit card. Carefully read through the terms listed on the credit card application form and the credit card agreement documents, to gain a clear understanding of the conditions under which your card's APR may change.
Grace Period
The grace period is the period of time given to you to pay your bill in full, and beyond which you will be charged interest on the sum due. The grace period is generally applicable only to new purchases, and not to cash advances, where the levy of interest sets in from the date you take the advance.
How is interest calculated?
Interest is charged on your outstanding balance, and will be levied on the basis of the APR. Credit card companies may calculate the outstanding balance in one of the following ways:
Over one or two billing cycles
Based on the average daily balance, or the previous balance, and billing cycle
new purchases may or may not be taken into account when computing the balance.
Comparing APRs of Major Credit Card Companies
Credit card companies have a different rate structure for their APRs, reward points and other benefits that they offer under a range of loyalty schemes. At the time of writing, headline APRs ranged from 15.9 to 16.9% from the major Visa and Mastercard issuers and up to and in excess of 30% for store cards (which are almost invariably more expensive interest-wise).
Conclusion
Take care when selecting a credit card and be sure to study the finer details regards the APRs for different transaction types, reward points offered, and any other penalties chargeable and rewards offered before making a final decision. If you keep your payments within the prescribed payment dates for each billing cycle and use of all the reward points offered under various loyalty schemes, you will stand to gain substantially when using the card, in monetary terms as well as from the sheer convenience it offers.
About the Author
Stephen Pratley is Marketing Manager at ipoints
With the ipoints credit card, you can earn ipoints whenever you use your card online or offline. Other major card providers also allow you to earn ipoints. Find out more and Earn Loyalty points on Credit Cards and Loans
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