Credit cards as mention in the name are cards having credit. With a credit card, its holder can purchase goods on credit, can pay the fees of universities online get financial schemes from the banks, and a lot more. The money used to purchase the goods and all other expenses can be submitted to the bank later. However, the bank will cost for it. You have to return the money with an interest at certain rates. The interest rate keeps on increasing for the delay in payment. This is how the credit card works.
To be a credit card holder it is important to have a good credit score but it is not a compulsion. However, it can affect the interest rate on your credit card. With an interest in credit cards, there is another terminology caller APR of a credit card. The APR stands for the annual percentage rate. For credit cards, the interest rate normally implements yearly that is why it is called the annual percentage rate. As it is the percentage of interest.
Credit cards are beneficial in many ways and the best thing about them is they are quite secure nowadays. One doesn’t need to bring the cash anywhere the credit cards are accepted at most of the places. Credit cards are secure if lost you can block them just by a single call to your bank and secure your money.
The interest rates and the APR are the way your credit card provider earns money. These are important for the cardholder as well as these factors avoid the card user to spend money more than required. More description about the credit cards, apr, and the interest is provided in the following sections
The Credit card its description, APR, and interest are something to understand. Let us discuss them one by one
As mentioned before credit cards are by some financial institution, mainly a bank. Using this card you can pay for your goods from a pre-approved limit. That is important you cannot spend more than the pre-approved amount. This limit is decided by the organization that handover the credit to you. Its limit is mostly based on credit scores. A credit score is a three-digit number typically from 350 to 800 based on your history of performance and amount of credit. For credit score, the simple rule is the higher the better. A higher credit card will increase your limit of purchase through credit card and lower the interest rate and vice versa.
The credit card number holds your information and security protocols to avoid scams and fraud. Personal information such as card details other than numbers and passwords should not be shared with anyone. People even feel insecure to share the credit card number and share their VCC or virtual credit cards. These are must information one must go through with the bank officers to avoid any fraud in the future.
APR of Credit Card
The APR or annual percentage rate is the annual percentage of interest you have committed to pay while getting a credit card. However, many credit cards holder don’t pay this APR. It is due to the rules and regulations of credit cards. There is a due date to pay back for every credit you used via credit card. If you pay back your credit within the due date every month. It means you will not have any credit on you. So, you don’t have to pay the APR.
What If you have a credit on your credit card that you haven’t paid before due to that. It means now you have to pay the APR. The formula to calculate the APR is daily rate x average daily balance x days in a billing cycle. This is equal to the credit card interest. More delays will cause more and more APR. The banks earn a lot from APR. There are few reasons that you couldn’t pay on time. Firstly, you don’t know how APR works, Second, you bought more than your capacity and find it hard to repay before the due date, thirdly you underestimated the amount of APR you could have to pay.
Every credit cardholder needs to understand the phenomenon of APR. Of course, credit cards are becoming part of daily life and in many places, the only solution is a credit card, but understanding how it exactly works is important. The APR can be up to 24%. It’s a huge amount. According to one survey, more than 50% in the US don’t understand the theory of APR. It means they are paying annually the amount they could have avoided.
Interest on Credit Cards
There are two ways by which credit card companies earn money. One is the service charges, as the credit card is a convenient way to pay money. The company cut a small amount of money on its usages such as on restaurant or shopping mall. It’s a small amount but many people use a credit card so overall it becomes a huge amount. The other way is called interest on credit cards.
One of the interest rates is APR as mentioned above. However, the company can introduce multiple types of interest, for example, they may charge on cash advances or your monthly payment may include a small amount of interest. For most credit cards companies, if you paid monthly before the due date you don’t have to pay any other interest including APR. However, some company gets a low rate of interest on your every payback.
It is important to understand the theory of interest rates on credit cards, to avoid any confusion.
The credit card comes with a lot of facilities and advantages. They are securer than before, more people are relying on them, and chances of theft have lowered. However, every good thing comes with some package. The package for credit cards includes APR and other interest rates. The credit card holder needs to understand them properly and clearly. Otherwise, it could cause a big financial problem. The interest rate and APR are very high for credit cards. The only way to avoid them is to pay within a due date every month. On the whole credit card are important nowadays to keep with.