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What is APR?

APR generally stands for “Annual Percentage Rate”. This is a financial term that is mostly used with credit cards. Generally, APR is the universal way of expressing the value of money that is borrowed over a year, this money or cost includes both the interest rates as well as various fees which are associated with a credit card or loans.

By looking at the APR we can get a clear image of what is the actual cost of borrowing than just the interest rates alone. This is because APR consists of both the interest rates as well as various fees which are associated with a credit card or loans. APR is an essential tool in the financial market because by looking at APR we can compare loans and credit cards.

Now after knowing the true meaning of the annual percentage rate, let us look at how does apr work on credit cards?

How Does Annual Percentage Rate Work on Credit Cards?

As we know that APR represents the total cost of borrowing which means that by looking at APR we can find out which credit card works best for us. By understanding how APR works we can manage our finance better than before. So without wasting any more time let us look at the working of the annual percentage report.

1. Interest Charges on Balances

Let us understand interest charges on balances by an example. Suppose you're carrying a balance from one cycle of billing to another cycle then the credit card company will charge you interest on that balance. This interest rate is calculated by using APR which is later expressed as an yearly percentage rate.

This interest rate is calculated by using the annual daily balance method in which the credit card issuer adds up the remaining balance of each day of the current billing cycle and divides it by the number of days in the billing cycle.

2. Different Annual Percentage Rates for Different Transactions

Let us understand interest charges on balances by an example. Suppose you're carrying a balance from one cycle of billing to another cycle then the credit card company will charge you interest on that balance. This interest rate is calculated by using APR which is later expressed as an yearly percentage rate.

This interest rate is calculated by using the annual daily balance method in which the credit card issuer adds up the remaining balance of each day of the current billing cycle and divides it by the number of days in the billing cycle.

Added by - Nidhi, 4 Aug 2023