Credit Card Interest Rates - An Overview

What is the thing you notice most when you see a credit card advertisement? It's the interest rate, also known as the APR. This is probably the most well-publicized factor when it come to credit cards. Many people will look at the different interest rates on the numerous cards available and go for the one with the lowest APR.

Credit card rates are, in fact, one of the most important factors in the selection of a credit card (though not the only factor). Therefore, a proper understanding of Credit card rates is even more necessary.

The question is, what is APR? Basically it is the interest rate which the credit card company charges on the amount of money which you owe to them. The interest will be charged if you don't pay the full amount owed in time.

When you get the credit card bill, it will tell you the amount which you owe to the card company. It will also tell you the smallest payment you can make and a date by which to pay it. You choose whether to pay the full amount or to only pay the minimum payment required.

If you pay the debt in full by the date which it is due on, you will not be charged interest. But, if you opt to pay only the minimum amount required, or any other amount less than the full debt, you will pay interest with the amount depending on the interest rate and the balance owed. The rate of interest is the one which will have been agreed when you applied for the card.

The credit card suppliers use this annual credit card rate to calculate the monthly credit card rate and then they calculate the interest on the balance amount that you owe them. The balance amount here is simply = Full amount - (payment made by you). This interest is added to your balance for the next month (at the time of next billing cycle).

If you only make a partial payment again, a new balance will be worked out and the rate of interest (the monthly rate) will be applied to calculate the new interest. This carries on until the debt is fully paid off.

In this way, a vicious circle can occur. This is why interest rate is an important thing to consider when selecting a credit card.