What is Annual Percentage Rate (APR) in Credit Card?
26 May, 2025
Synopsis:
The full form of APR is Annual Percentage Rate.
It represents the annual cost of borrowing on a Credit Card.
It is calculated as a percentage and can be of various types.
Understanding the costs associated with Credit Cards is important for their effective use. One key concept is the Annual Percentage Rate (APR), which encompasses the interest rate and other fees. This article explains APR on Credit Cards, detailing the various types and their uses, helping you make informed financial decisions and manage your Credit Card effectively.
What Is An APR In Credit Cards?
The Annual Percentage Rate (APR) signifies the annual cost of borrowing on a Credit Card, expressed as a percentage. It includes the interest rate and other associated fees. The APR shows how much you’ll pay over a year if you don’t pay off your balance monthly. For instance, a card with an 18% APR charges 18% interest on the balance if unpaid for a year. While APR is an annual rate, Credit Card companies calculate interest daily. Understanding APR helps you make informed Credit Card decisions.
What is the Function of the Annual Percentage Rate in Credit Cards?
The APR serves several important functions in the realm of Credit Cards:
Cost Comparison
APR allows consumers to compare the cost of different Credit Cards. Since it includes not only the interest rate but also other fees, it provides a more comprehensive measure of the cost of borrowing than the interest rate alone.
Interest Calculation
Credit Card companies use the APR to calculate the interest on outstanding balances. Most Credit Cards in India calculate interest on a daily basis using the Daily Periodic Rate (DPR), which is derived from the APR. The formula for calculating DPR is:
DPR=365/APR
The daily interest is then calculated by multiplying the DPR by the outstanding balance.
Transparency and Disclosure
By law, Credit Card issuers are required to disclose the APR to consumers, ensuring transparency in lending practices. This helps consumers understand the true cost of borrowing and prevents hidden fees and charges.
Different Types of Credit Card APR
Credit Cards can have multiple APRs that apply in different situations:
Purchase APR: The interest rate applied to purchases made with the Credit Card. It is used to calculate the interest on any balance from purchases not paid off within the billing cycle.
Balance Transfer APR: The interest rate for balances transferred from another Credit Card. Many companies offer promotional rates as low as 0% for a limited time. However, terms should be carefully reviewed as rates can increase significantly after the promotional period.
Cash Advance APR: The interest rate for cash advances taken using the Credit Card. Cash advances usually have a higher APR than purchases or balance transfers, with interest accruing immediately without a grace period.
Penalty APR: The interest rate applied if you miss a payment or violate other terms of your Credit Card agreement. This rate is typically much higher than the regular APR and can be imposed if payments are late by more than 60 days.
APR Helps With Effective Credit Card Management
Understanding the Annual Percentage Rate (APR) is essential for effective HDFC Bank Credit Card management. APR measures borrowing costs, aiding in comparing card offers and making informed decisions. Knowing different APR types, such as Purchase, Balance Transfer, Cash Advance, Penalty, etc., helps avoid unnecessary interest. Always read your card’s terms to understand APR calculations and fees.
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*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
