APR on credit cards stands for Annual Percentage Rate. It represents the annual cost of borrowing money on the card, expressed as a percentage. APR includes the interest rate plus any standard fees associated with borrowing but excludes extra charges such as late payment fees or cash withdrawal fees. Key points about credit card APR:
- It estimates how much borrowing on a credit card will cost over a year.
- A higher APR means borrowing is more expensive; a lower APR means it is cheaper.
- APR usually reflects the standard purchase interest rate, but balance transfers or cash advances may have different, often higher, rates.
- It is used to help compare credit card offers because it gives a complete picture of borrowing costs, including both interest and standard fees like annual fees.
- APR does not include non-standard fees such as penalties for late payments or going over the credit limit.
- Credit card companies often offer a grace period during which you can pay off your balance without paying interest, thus avoiding APR charges.
Understanding APR is important because if you carry a balance on your credit card, the APR determines how much interest you will be charged annually on that balance. It helps consumers compare the cost of credit cards in a standardized way to make better borrowing decisions. In summary, APR is a comprehensive measure of the yearly cost to borrow on a credit card, expressed as a percentage, that combines interest and certain fees but excludes penalties or other variable charges. Lower APRs mean cheaper borrowing costs. This information is based on reputable financial sources including Lloyds Bank, HSBC, Barclaycard, and other financial education websites.
