You are charged an interest rate on your unpaid bill if you do not pay it. Basically, the APR credit card refers to their intentions to make you debt trapped in order to profit from it. You obviously want a low number if you plan on becoming a debt frequenter.
It makes you think you’re getting a great deal and takes your mind off how deep you’re getting into debt if your credit card has a low APR credit card. As a result, you are more comfortable paying them to threaten your financial independence in the future.
Credit cards have zero-point-zero-zero APRs if you use them as a convenient way to pay and then pay them off each month in full. There is no comparison between zero and any advertised APR, convenience check specials, and debt consolidation limited-time offers when you apply for credit card online.
How does an APR work?
As the name suggests, APR (Annual Percentage Rate) refers to a credit card’s average annualized interest rate. Therefore, if you borrowed Rs.100 @39.6% p.a for a year, you would be required to pay Rs.39.6 in interest in addition to the Rs.100 principal at the end of the year.
The situation is complicated and nuanced beyond that. The interest on your credit card, for example, is almost always calculated per day, even though the interest is annualized (i.e., apr credit card). As a general rule, the formula looks like this:
Interest=BalancexAPR/365 XNoofdaysina billing cycle
Today, the balance reflects the average of the daily balances (i.e., the sum of the daily balances divided by the number of days in the billing cycle). To refine the equation above, we need to consider the following:
Interestrate=SumofdailybalanceXAPR/365
A billing cycle’s ‘number of days’ is canceled out. You will have to shell out Rs.32.54 in interest if you purchase something worth Rs.1000 on the last day of a billing cycle, but you will have to pay Rs.1.08 if you purchase it on the first day (assuming a billing cycle of 30 days).
It is possible, however, that your card issuer will calculate interest rates using another methodology. You can also charge interest on purchases based on the number of days they are used as credit. With our first equation, interest would be calculated on A for 20 days and on B for five days if you purchased A at least twenty days before the end of the billing cycle and B 5 days before the end of the billing cycle before you apply for Bajaj Finserv RBL credit card.
There’s more to it than that. Depending on the transaction, the APR credit card may differ. Default APRs (in case of default on Minimum Amount Due) is generally higher than APRs on purchases. There may be an introductory interest rate rebate or zero interest on certain transactions (such as balance transfers).
In the beginning, you may be offered introductory interest rates, such as 4.85% (not easy to calculate). Still, the APR may rise significantly after a year, such as 17.25% (definitely not easy to calculate). The Daily Periodic Rate (DPR) is calculated by dividing the APR by 365, as follows:
Balance X DPR X days in statement billing cycle = interest on the month’s statement
The interest rate for one month is generally 1/12th of the annual percentage rate.
There may be some tricky situations now. In addition to the required APR disclosure, the calculation could also include a fee for origination. Compounding may also be a problem.
It may also be possible to adjust the interest rate for a specific month based on the number of days or days in the statement cycle. A revolving loan, such as a credit card, typically falls into this category. For 31 days, the interest rate would be 31/365th of the annual percentage rate. Another alternative is converting the APR to a daily percentage rate, which is 1/365th of the annual rate.
To avoid interest, always pay off the entire statement balance on monthly statements, not just the minimum due. You still pay interest on that balance even if you pay the minimum balance. If you don’t pay at all, then you’ll have a Penalty APR. There’s also variable APR and fixed APR, so be sure to clarify with the credit card company which one you’ll have.
Different companies offer different credit cards with different APRs. Depending on your credit history and score, some cards offer a fixed percentage APR while others offer a range. Credit cards also offer 0% APR for the first three, six, nine, or twelve months.
After about six months, you can frequently contact the credit card company and request a lower interest rate. APR only applies when the previous month’s balance is carried over into the following month. Pay your full credit card due amount every month rather than looking for a lower APR rate. As a result, you can ignore the APR and focus on all the other benefits of the credit card instead.
