Hi, Some one can explain me how APR works with credit card usage in detailed information and example?

Question

Want to know what is APR and how does it work for credit card?
Want to know working mechanism of credit card sysytem?

Answer 1

You will have to read the information that the credit card company sends you. The way it is applied can vary by company and depends on if you pay the bill in full or not. They may divide the rate by 365 and apply it daily or divide it by 12 and apply it monthly.

Answer 2

If you borrow £100 (or any currency) from a bank at a rate of 5% to be paid back in one year - you will have to repay 105. If you have to pay it back monthly at the same rate you will be asked to pay almost 9 per month. Now, if you work out the interest rate monthly, that is 5% on 100 for 1 month, 5% on 91 for 1 month, 5% on 82 for 1 month and so on, you add up all the interest and it will come to about 12%. That is the APR or True rate. It may not be much on this sample transaction, but when you are talking thousands with an APR of say 16% it can be very high. It is much better, if you can get it, to get a bank loan with a fixed rate and an APR of less than 10%. Hope it helps..........

Answer 3

the annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Investopedia Says...Loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors. A standardized computation such as the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders.

By law, credit card companies and loan issuers must show customers the APR to facilitate a clear understanding of the actual rates applicable to their agreements. Credit card companies are allowed advertise interest rates on a monthly basis (e.g. 2% per month), but are also required to clearly state the APR to customers before any agreement is signed. For example, a credit card company might charge 1% a month, but the APR is 1% x 12 months = 12%. This differs from annual percentage yield, which also takes compound interest into account.

Answer 4

The apr is simply the "quoted" or "nominal rate" used to calculate the interest you owe should you decide to carry a balance.

The most important thing to note is whether your card uses the daily periodic rate or monthly periodic rate. Most cards these days use the daily periodic rate.

For example, if the apr is 10%, then each day of the billing cycle, your interest charge is 10% divided by 365 (number of days in the year) and multiplied by the average daily balance.

If the monthly periodic rate is used, then your interest is calculated by taking 10% divided by 12 (12 months a year) and multiplied by the sum of the average daily balance for the month.

A card that uses the monthly periodic rate will have a lower effective interest rate than one using the daily periodic rate assuming all things being equal. This is due to the compounding effect. (see resource below).

The other thing you should be aware of is the method of calculating your monthly balance. (average daily balance method or the 2-cycle average daily balance method). Though it is not related to apr, it will affect your monthly interest. (see resource below for article with full explaination).

Answer 5

confusing to describe yet i visit attempt APR is the as quickly as a year share value. even if it extremely is a "theroetical" discern. in case you borrow £one hundred and pay 2% a month you may think of thats 12x2% = 24, even if it isnt when you consider which you pay 2% on each and each previous 2%. jan borrow one hundred - 2% = 102 owed feb 102 owed - 2% = 104.04 mar 104.04 owed = 106.1208 .... .... by utilising the top of december you owe 126.8242 - so APR is 26.eighty 3% even if - it nevertheless gets extra complicated, because of the fact each and each month you pay an volume off your astounding stability., so in case you only borrowed the one hundred and paid off 2.5% then your astounding stability reduces and by utilising the december you have paid £23.29 in extremely pastime so the value could only be 23.29. fees are oftentimes quoted assuming that each and each month you're making the minimum charge, yet then spend that quantity bringing it as much as the 1st occasion. so now that has completely puzzled you, i be attentive to it did me and that i'm typing it, the final suggestion is , decrease the extra suitable. pay attention for ameliorations nonetheless, because of the fact plenty quote their "commonplace" value yet you will locate it only gets presented to human beings earning over 400K a twelve months, with thoroughly clean credits historical past and no modern-day borrowings.