The rough guide to APR
The Annual Percentage Rate (APR) is the amount of interest charged on loans by lenders, including credit card companies. The APR on a credit card determines how much you have to pay back each month to cover minimum charges and interest on the credit card loan. It is calculated as a monthly charge multiplied by 12, depending on the balance of the card. For example, a card with a 10.2% APR (divided by 12) would give a monthly interest rate of 0.85% on the outstanding balance. On a 1,000 loan, this would equate to an interest charge of 8.50 a month. The total amount would depend on how much of your outstanding balance you paid off each month and if you made only minimum payments or additional payments to clear the balance.
APR is a useful comparison tool when selecting credit card offers, but there are key factors to remember when looking at the numbers. Consider the interest rate you have to pay, how you repay the loan and the length of the loan agreement. Also look closely for any additional fees associated with the loan, such as payment protection insurance. All lenders have to disclose their APR before you sign any agreement, and as the APR has a direct bearing on the cost of your loan shopping around to find the best deal is basic common sense. Don't be fooled by offers that appear too good to be true - they probably are. Responsible card lenders will give you all the facts and figures you need to make an informed decision.
Once you have found an attractive APR rate that suits your purpose, there are a couple of extra questions to ask the lender before signing. The first is whether the APR is fixed or variable. If it's variable, what may seem like a tempting offer to begin with could have a nasty sting in its tail as the interest charges can go up as well as down. A variable rate is subject to influence from the Bank of England's base rate and other market forces, meaning some credit card interest rates can change from one month to the next. This can be a good thing in a buoyant economic market, but could cost you more if the economy takes a dive. With a fixed rate the payments stay the same, regardless of outside market influences, but can be higher overall, depending on the of length time taken to pay back the loan.
The second question should be to ask for more detail about any additional charges that are not included in the APR. This brings us into payment protection insurance territory. With some cards, this service is an optional extra, but others insist on its inclusion. It can act as a safeguard should your circumstances change, but if it's something you're willing to forgo then look for cards that offer it as an option, rather than as a non-negotiable inclusion. This is a good time to also ask yourself if you could afford the maximum monthly repayment charges without stretching yourself financially to the limit. If the credit card loan is spread out over a longer period of time, the payments may be lower, but the calculated cost of the overall loan may be higher, as you are paying interest for longer.
Finance and lending has long been thought of as a murky part of business, complex and difficult to understand. APR stands apart from the system in that the Government and financial regulatory bodies recognise the public's unease when dealing with these mysterious financial figures and have put strict guidelines in place. All lenders are required to give full disclosure of APR charges to customers, allowing them to make an informed decision. Card companies are happy to comply with this, preferring that their customers know exactly what is expected from the outset from both parties. It makes for a far better business arrangement. APR can be calculated easily with a little bit of effort and a pocket calculator because all the facts and figures are there; it's just a matter of seeing how they relate to your situation. The temptation to leap feet first into a 0% credit card offer may be strong, but by taking a moment to examine all the costs involved expensive mistakes can be avoided and your all-important credit rating can be preserved intact.
Without looking closely at differing APR rates, it is impossible to make quick comparisons between alternative financial products. All companies use different calculations to determine their interest and other charges. To get the best credit card deal, a little research into how each company calculates that interest will save the consumer being lured into an expensive honeytrap by the promise of an initial interest-free period, only to get stung by a high APR once the honey has run out. There are plenty of good deals to be had on credit cards, and a smart consumer will be able to find one that suits both their budget and their requirements.
APR is a useful comparison tool when selecting credit card offers, but there are key factors to remember when looking at the numbers. Consider the interest rate you have to pay, how you repay the loan and the length of the loan agreement. Also look closely for any additional fees associated with the loan, such as payment protection insurance. All lenders have to disclose their APR before you sign any agreement, and as the APR has a direct bearing on the cost of your loan shopping around to find the best deal is basic common sense. Don't be fooled by offers that appear too good to be true - they probably are. Responsible card lenders will give you all the facts and figures you need to make an informed decision.
Once you have found an attractive APR rate that suits your purpose, there are a couple of extra questions to ask the lender before signing. The first is whether the APR is fixed or variable. If it's variable, what may seem like a tempting offer to begin with could have a nasty sting in its tail as the interest charges can go up as well as down. A variable rate is subject to influence from the Bank of England's base rate and other market forces, meaning some credit card interest rates can change from one month to the next. This can be a good thing in a buoyant economic market, but could cost you more if the economy takes a dive. With a fixed rate the payments stay the same, regardless of outside market influences, but can be higher overall, depending on the of length time taken to pay back the loan.
The second question should be to ask for more detail about any additional charges that are not included in the APR. This brings us into payment protection insurance territory. With some cards, this service is an optional extra, but others insist on its inclusion. It can act as a safeguard should your circumstances change, but if it's something you're willing to forgo then look for cards that offer it as an option, rather than as a non-negotiable inclusion. This is a good time to also ask yourself if you could afford the maximum monthly repayment charges without stretching yourself financially to the limit. If the credit card loan is spread out over a longer period of time, the payments may be lower, but the calculated cost of the overall loan may be higher, as you are paying interest for longer.
Finance and lending has long been thought of as a murky part of business, complex and difficult to understand. APR stands apart from the system in that the Government and financial regulatory bodies recognise the public's unease when dealing with these mysterious financial figures and have put strict guidelines in place. All lenders are required to give full disclosure of APR charges to customers, allowing them to make an informed decision. Card companies are happy to comply with this, preferring that their customers know exactly what is expected from the outset from both parties. It makes for a far better business arrangement. APR can be calculated easily with a little bit of effort and a pocket calculator because all the facts and figures are there; it's just a matter of seeing how they relate to your situation. The temptation to leap feet first into a 0% credit card offer may be strong, but by taking a moment to examine all the costs involved expensive mistakes can be avoided and your all-important credit rating can be preserved intact.
Without looking closely at differing APR rates, it is impossible to make quick comparisons between alternative financial products. All companies use different calculations to determine their interest and other charges. To get the best credit card deal, a little research into how each company calculates that interest will save the consumer being lured into an expensive honeytrap by the promise of an initial interest-free period, only to get stung by a high APR once the honey has run out. There are plenty of good deals to be had on credit cards, and a smart consumer will be able to find one that suits both their budget and their requirements.
About the Author:
Jo Smart is a financial author that enjoys taking time to break down the facts about credit cards and other personal finance options. You can find out more about Low APR Credit Cards and other Credit Cards here.
posted by Debt Consolidation Loan at
8:24 AM
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