Credit Card APR: Understanding the Annual Percentage Rate and How It Affects Your Balance
There are certain terms you will encounter when it comes to credit cards, and the Annual Percentage Rate is one such important term because it determines the borrowing cost of your credit card. Before applying for a credit card, a free CIBIL score check is essential through the CIBIL score app or the official credit bureaus’ portal. When you check on your monthly credit statement, you will find references to APR which signifies the interest on your credit account and includes the total finance cost. When you carry a balance on your credit card, APR comes into play. Other transactions, such as cash advances and late payments, are subject to Annual Percentage Rates, which may be higher than your regular rates. Whoever has a credit card should understand the APR and how it impacts your balance.
What is the Annual Percentage Rate?
The Annual Percentage Rate, or APR, is the yearly interest on your credit card that you will pay if you have a balance on your credit card. Credit card issuing companies charge the cost for the benefit of borrowing money. The APR is expressed as a percentage that represents the annual fund cost. Credit cards mostly have Annual Percentage Rates, which vary over time depending on the Prime Rate. Numerous credit cards have variable Annual Percentage Rates based on the transaction type, which perplexes the whole interest rate calculation procedure. If you clear your overdue amount within the deadline in full, you can successfully avoid paying the Annual Percentage Rate.
How Can Annual Percentage Rate Cost You and Impact Your Balance?
If you pay your outstanding dues in full monthly, banks don’t charge the interest on your credit card. Doing so will benefit you from grace periods, usually a 21-day period that begins at the billing cycle’s end, during which you can repay your new balance without encountering interest charges. It will also show you good results when you perform a free CIBIL score check.
You will incur interest and show low digits after your free CIBIL score check if you have a credit card balance. You will lose the grace period for numerous months, even if you carry a balance on your credit card for only a month. How much interest you will pay will be based on your credit card’s Annual Percentage Rate, the size of your payments each month, and the balance.
Tips to Maintain a Low Annual Percentage Rate
The ways to maintain a low or lower your Annual Percentage Rates are as follows:
Repay Your Credit Card Balance
If you pay your credit card balance on time, you won’t have to pay interest. It is not always possible in the short term, but worth considering if you want to escape from your credit card’s interest rate.
Opt for Balance Transfer Facility
Suppose you have numerous credit cards. In that case, you can transfer the balance to a low Annual Percentage Rate credit card. It will let you enjoy low-interest rates on your credit card debt. Availing of the balance transfer facility will let you clear your dues quickly and boost your credit score,
Boost Your Credit Score
In a few scenarios, your credit score might be why the high Annual Percentage Rate is higher than you wished or expected. Suppose you work towards improving your credit score in the short term. In that case, you can have a good shot at a lower Annual Percentage Rate where you ask your credit card issuing company for a low rate or apply for a new credit card. You can perform a free CIBIL score check through the CIBIL Score App.
Show Good Repayment Behaviour
If you pay the minimum amount against your credit card dues, the expandable credit on your card will accrue interest. Nevertheless, if you pay your credit card bills on time in full monthly before the payment deadline, you can save yourself from interest.
Conclusion
Understanding what an Annual Percentage Rate is and how it can affect you is important if you have a credit card. If you do not have a balance on your credit card, you do not need to worry about it. But if you feel the need to have a balance on your credit card, understanding your Annual Percentage Rate will help you manage your monthly payments. Before sending your application for a credit card, check to see if your opted credit card’s APR is linked to any introductory or promotional offer. You can also go for a free CIBIL score check and download the CIBIL Score App. Your Annual Percentage Rate can increase after your credit card’s introductory or promotional offer ends.
