If you are a credit card user you already are familiar with the term APR interest, because it might have popped up on numerous occasions, like when you received the offer or when the credit card executive was explaining the terms and conditions to you, or when you filled up the application form. And, of course, when you review your monthly statements, but do you know everything that you ought to know about this term? Even if your answer is no, you do not have to worry. This post will describe all the nuances about APR interest.
How is regular interest calculated?
There are two types of interests: simple and compound interest. Regular interest that banks and other lending organizations calculate is usually compound interest rates and does not include any other charges in addition to the specified interest rate.
How is APR interest calculated?
APR interest gets a bit more complex than the regular interest rates. There are additional charges and fees added to the compound interest and that is how APR interest rates get inflated when compared to regular interest rates.
Why should you bother about APR interest rates?
Well, if there is one thing you should worry about regarding credit card usage is the APR that is applicable to it. This rate will determine how much money you will have to shell out each month if you have an outstanding balance on your credit card after purchases or after a cash advance.
Another good reason to pay heed to the APR interest applied on your credit card is to successfully manage your finances. Many credit card companies offer very low or even zero introductory APR rates to lure in new customers.
This is the time when you should be paying a lot of attention. If you can find a credit card that offers both 0% APR on an introductory offer coupled with a long interest free period (say eighteen months) then that would be a great offer.
If you think over it, you realize that eighteen months is a fairly long period. You can comfortably pay off small to moderate sized debts within this period, provided that there are no unpleasant surprises in between like loss of your job or some sudden unexpected financial crisis.
Using the 0 % APR interest offer to maximum benefit
If I were in your place with a 0% APR interest credit card that offers the interest free period for 18 months, I would use this credit card for all of my new purchases that do not cost an arm and a leg or an amount that I cannot pay back within eighteen months of time.
But do not jump into a frenzied shopping spree with such a credit card because it is only the interest that is waived off; you still have to pay the cost and unless that is affordable you will be in a sticky mess.
To sum it up, you absolutely have to know what you will be paying for as interest rates. It is no point snatching a good deal when you don’t factor in interest rates.
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