Question about credit cards...?

Question

My credit card has an APR of 12.9%. I just got the credit card, and it's my first one... and I want to figure something out before I go and use it. If I go out today and spend $100, and assume (neglect the minimum payment) that I don't pay any of it back for a year, does that mean after an entire year they will have added $12.90 to my balance, or is that $12.90 each month? I'm confused...

Answer 1

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Answer 2

You pay interest at the rate of $12.90 per year for the $100. However, if you don't pay the total card balance, the interest is compounding so that you may end up paying a LOT for the $100 you borrow (which is all you are doing when you use a credit card). Paying only the minimum payment could end up taking you 3-5 years to pay off even a small balance.

NOTE: You MUST make at least the minimum payment each month and that payment MUST be received by the credit card company by the due date, or you will be reported as delinquent. Even if you are 1 day late, you can be reported. In addition, they will add a late payment fee of probably about $39 (depends on the card).

Answer 3

Depends on how often they accure the interest. You'd have to read the fine print to find that out. Some credit cards accure interest bimonthly, while others monthly, so it actually would be a bit more than $12.90 on that $100 purchase. But heads up - you don't want to miss any payments (or even be late) as it will affect your credit score - not worth it for $100 ;)

Listen to Jerry. Essentially if it's compounded monthly, what they do is they calculate, monthly, a portion of the APR and add it to the balance due. So let's say you have your 12.9% APR, divide that by 12 and you get 1.075%. So after month #1, they'll calcuately what 1.075% of your balance is (in this case $100) and add that to it. So at the end of month #1, your balance will go up to $101.08, then at the end of month #2, they'll calculate 1.075% of the new balance of $101.08 (which would be $1.09) and add that to the balance which would give a new balance of $102.89, and so on. In the end, the interest that would accure after 12 months would be $13.69.

So that's how they cheat you out of money and weasel their way into getting more than what they advertise - they compound monthly (or however often they do) and in that sense can make more, and most people carry more than $100 on their cards and since their minimum payments are like $10, the credit card company makes a nice chunk. Does that make sense? It took me a while to get it. In fact, it took me screwing up my credit to understand it. Don't do what I did - pay on time and don't think of credit as "free money" because it really isn't.

Actually Gemthewitch has it right too - that is if they compound daily. Just be sure to read the fine print.

Answer 4

APR means annual percentage rate. Divide 12.9 by 365 to get your daily percentage rate - it comes out to about 0.035%. Multiple THAT number by the number of days in that biling cycle - that will be your percentage rate that month. It'll be close to 1.5% - give or take depending on the days of the billing cycle.

Credit card interest is compound interest - meaning that the interest you paid last month is added to your balance and you will pay interest on that new balance.

Now, that isn't normally a problem because your minimum payment is based on your interest for that month plus a portion of your principal. If you didn't pay the minimum payment though, you would start paying more in interest because your balance would be increasing.

Assuming you weren't charged late fees and didn't pay the minimum payment each month, your balance at the end of the first month would be about $101.50. At the end of the second month, it would be $103.02 ($101.5 +1.5%). The third month would be $104.56 ($103.02 + 1.5%) And so on. At the end of the 12 months, your balance would be about $119.56. Thus, you're paying more interest than the advertised rate would appear to charge.

Since this is your first credit card, I will give you some advice. If at all possible, save it for emergencies and necessities.

When you do use it, try to pay it off when you receive your bill - most credit cards offer a 25 day grace period on the interest for any new charges. If you pay it off in that grace period, you don't pay any interest at all.

If you can't pay it off within that grace period, try to pay at least double your minimum payment. That reduces the balance you carry - which means you pay less interest in the long run. You'll also pay off the balance in a little less than half the time it would take otherwise.

Always try to make your payment on time - late payment fees can kill you, they're typically $29-39 each time. Also try to avoid going over your limit as that also incurs a fee of $29-39 each time. Many credit card companies offer online payment now - which gives you a confirmation number to ensure that your payment was received. If there's ever a problem where they claim you did not pay your bill - you'll have the confirmation number as proof.

Credit cards can be great tools or they can be the stone around your neck - it all depends on how wisely you use them.

Hope this helps!

Answer 5

It is about $12.90 a year it may be just a little more that 12.90 but not much more. Still pay the minimum payment.

Answer 6

The APR part means annual percentage rate, and sometimes this can be confusing. You need to look on the cards financial agreement sheet and find out if it specifies if the interst is compounded monthly or yearly. Usually APR rates are for one year, but sometimes you get companies that do monthly. If you don't have a financial agreement sheet then go to their website where they should have one posted. If you still can't find out, then cut the card and call a better company like Capital one.

Answer 7

It would be a whole lot more than either of those figures. I get confused on how they figure those percentages out. My husband just tried to explain it to me and I'm still confused, but they charge some fraction of that interest daily. It ends up being a whole lot more than just $12.90 a month.

Answer 8

It's 12.9% of the balance each month. If you don't pay, then you will also have roughly $20-$30 late fee which will also get hit with the interest.

Use it, just don't abuse it. Credit Cards are tools, they can help you greatly or they can bury you deep.

Answer 9

if you dont pay it for a year they will charge you a monthly charge(its usually 30 dollors) a month! and when you reach your credit limit they charge you that 30.00 and another 30.00 for overlimit fee. then they come up with all kinds of BS charges to charge you with. its insane how they work yo, but you did sign the application,and all of this was in the fine print! LOL best thing to do is is you wasnt to keep the card: only buy what you can afford to pay when yhe bill comes or my suggestion is cancle the card and shred it up. go gewt you a checking/savings account and get one of those debit mastercard or visa.

Answer 10

12.9 is the annual percentage rate applied to the unpaid balance.

Answer 11

they will add12.9% every month of the balance and late fee for every month