There are many options available for credit cards. Whether you are aspiring to get your first card and build your credit or are a seasoned pro and need a new one, there’s much to know before you apply. One of the most important aspects is the interest rate. You should compare the interest rate on a few cards before applying.
What You Should Know About APR and Interest Rate
The interest rates found in credit cards are known as the annual percentage rate or APR. What makes the interest rate on a credit card seem different is that it’s defined in terms of a year instead of daily, weekly or monthly. However, the specific interest rate you are responsible for on your card depends on how you pay back what you owe or if you carry a balance when one is owed.
For example, a credit card might have an APR of 20%, but if you’re responsible for paying back debt on it, you can either pay it in full or pay the minimum amount. If you choose to pay in full, you won’t have to worry about paying interest. However, if you only pay a portion at a time, you’ll be responsible for the interest rate as well.
How Can You Calculate Your Interest?
Calculating a credit card’s interest rate isn’t something everyone does, but it can help when you want to be in the know. For instance, if you’ve got a credit card that has an interest rate of 20% and only pay back the minimum balance owed on a regular basis, you will have to pay 20% interest toward your annual balance by the end of the year. According to the experts at SoFi Invest, knowing how to calculate credit card interest can help you avoid surprises once the year is up. If you had a balance of $10,000 on your credit card, your interest at the end of that year would be $2,000.
Credit card interest rates are determined by dividing the APR amount by 365 for the total days of the year.
Variable Vs. Fixed Interest
Many credit cards charge an interest rate that is either variable or fixed. Most are variable, which means that the rate changes over time depending on your usage. Many loans are the same and carry variable interest rates that change based on the economy.
Where Can You Find a Credit Card’s Interest Rate?
Finding a credit card’s interest rate is important when you’re deciding whether that’s the card for you. It’s wise to compare a few different options and their interest rates. However, you might have trouble finding this information if you search for a card that isn’t offered by your bank or credit union. Most people apply for credit cards online these days, which means you might have to do some digging. You can find this information by checking the Schumer box, which is found in the fine print.
Understanding the APR for purchases, balance transfers and cash advances can give you an edge on which card gives you the best rates. You should also examine potential fees you might accrue depending on your usage.
Comparing credit card interest rates can help you find the card that’s most appropriate for you and your spending.