Doing the numbers on APR
The Annual Percentage Rate (APR) is the amount of interest charged on loans by lenders, including credit card companies. The APR on a credit card determines how much you have to pay back each month to cover minimum charges and interest on the credit card loan. It is calculated as a monthly charge multiplied by 12, depending on the balance of the card. For example, a card with a 10.2% APR (divided by 12) would give a monthly interest rate of 0.85% on the outstanding balance. On a 1,000 loan, this would equate to an interest charge of 8.50 a month. The total amount would depend on how much of your outstanding balance you paid off each month and if you made only minimum payments or additional payments to clear the balance.
APR takes into account a number of different factors, all of which combine to give you the final figure. This includes the interest rate you have to pay as set by the lender, the length of time it takes you to pay off the credit card loan and the frequency and timing of your instalment payments. It can also take into account additional fees that the lender may impose on the loan agreement, such as payment protection insurance. All lenders are required to give full disclosure of their APR charges and, as the rate has a direct bearing on the cost of your credit card loan, it pays to shop around before you sign any agreement.
Once you have found what appears to be an attractive APR rate, there are a few more questions you should ask the lender before committing to any agreement. The first of these is if the APR is fixed or variable. If the rate is variable, what may seem like an attractive offer in the first instance may change dramatically after an initial introductory period. A variable rate will also be affected by any changes in the base interest rate, set by the Bank of England. With variable rates, your payments can go down as well as up, so it pays to check the fine print. With a fixed rate, your repayments stay the same.
The next question to ask is if there are any additional charges that are not included in the APR. This could include charges for services such as optional payment protection insurance. If additional charges are included, make sure you understand what they are, ask yourself whether you really need the services offered and how much and when you would have to pay. At this point, it is wise to ask yourself if you can afford the monthly payments. A more expensive loan with a higher APR could have lower monthly repayments if they are spread out over a longer period of time. This might suit those on a tighter budget, but it is sensible to calculate how much extra you would be paying in the long run.
Finance and lending has long been thought of as a murky part of business, complex and difficult to understand. APR stands apart from the system in that the Government and financial regulatory bodies recognise the public's unease when dealing with these mysterious financial figures and have put strict guidelines in place. All lenders are required to give full disclosure of APR charges to customers, allowing them to make an informed decision. Card companies are happy to comply with this, preferring that their customers know exactly what is expected from the outset from both parties. It makes for a far better business arrangement. APR can be calculated easily with a little bit of effort and a pocket calculator because all the facts and figures are there; it's just a matter of seeing how they relate to your situation. The temptation to leap feet first into a 0% credit card offer may be strong, but by taking a moment to examine all the costs involved expensive mistakes can be avoided and your all-important credit rating can be preserved intact.
Without taking into account APR, it is impossible to make an informed decision on which credit card deal is the best. The bells and whistles cards look tempting, but are designed with a specific type of customer in mind. If you don't fit the profile exactly, keep shopping around. To get the best deal, consumers need to be flexible and to take a little time studying the marketplace. That way they can avoid high APR rates that lay in wait for the unwary.
APR takes into account a number of different factors, all of which combine to give you the final figure. This includes the interest rate you have to pay as set by the lender, the length of time it takes you to pay off the credit card loan and the frequency and timing of your instalment payments. It can also take into account additional fees that the lender may impose on the loan agreement, such as payment protection insurance. All lenders are required to give full disclosure of their APR charges and, as the rate has a direct bearing on the cost of your credit card loan, it pays to shop around before you sign any agreement.
Once you have found what appears to be an attractive APR rate, there are a few more questions you should ask the lender before committing to any agreement. The first of these is if the APR is fixed or variable. If the rate is variable, what may seem like an attractive offer in the first instance may change dramatically after an initial introductory period. A variable rate will also be affected by any changes in the base interest rate, set by the Bank of England. With variable rates, your payments can go down as well as up, so it pays to check the fine print. With a fixed rate, your repayments stay the same.
The next question to ask is if there are any additional charges that are not included in the APR. This could include charges for services such as optional payment protection insurance. If additional charges are included, make sure you understand what they are, ask yourself whether you really need the services offered and how much and when you would have to pay. At this point, it is wise to ask yourself if you can afford the monthly payments. A more expensive loan with a higher APR could have lower monthly repayments if they are spread out over a longer period of time. This might suit those on a tighter budget, but it is sensible to calculate how much extra you would be paying in the long run.
Finance and lending has long been thought of as a murky part of business, complex and difficult to understand. APR stands apart from the system in that the Government and financial regulatory bodies recognise the public's unease when dealing with these mysterious financial figures and have put strict guidelines in place. All lenders are required to give full disclosure of APR charges to customers, allowing them to make an informed decision. Card companies are happy to comply with this, preferring that their customers know exactly what is expected from the outset from both parties. It makes for a far better business arrangement. APR can be calculated easily with a little bit of effort and a pocket calculator because all the facts and figures are there; it's just a matter of seeing how they relate to your situation. The temptation to leap feet first into a 0% credit card offer may be strong, but by taking a moment to examine all the costs involved expensive mistakes can be avoided and your all-important credit rating can be preserved intact.
Without taking into account APR, it is impossible to make an informed decision on which credit card deal is the best. The bells and whistles cards look tempting, but are designed with a specific type of customer in mind. If you don't fit the profile exactly, keep shopping around. To get the best deal, consumers need to be flexible and to take a little time studying the marketplace. That way they can avoid high APR rates that lay in wait for the unwary.
About the Author:
Jo Smart writes for various popular websites and is an expert at explaining financial topics. You can find out more about Low APR Credit Cards and other Credit Cards here.
posted by Credit Counseling at
8:11 AM
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