Credit Card APR

Annual Percentage Rate or APR on a credit card refers to the annual interest rate for your card. This rate is applicable when you have an outstanding balance. It is crucial to remember that the APR on a credit card varies depending on the card and the issuer. 

Some cards carry variable APRs, which can go up or down over time. On the other hand, some may have promotional or introductory rates. In such cases, the APR on the credit card can go up after the introductory period ends.

To understand this better, here is a table with the credit card APR and interest rate for some of the top credit cards in India.

Heavy interests can be avoided if you can comprehend how the next APRs may take effect. Hence, it is useful to understand how APR is calculated.

 

Different APRs are charged on a credit card. A credit card issuer factors in several parameters to decide on the APR to be charged. Of these factors, creditworthiness decided by your credit score is a key factor in determining the APR you qualify for. Usually, the better the credit score, the lower is the APR that you are likely to be charged.

 

Here is a formula to figure out your typical purchase APR. Let’s assume there is a credit card with a variable APR of 20%, a 30-day billing cycle, and a daily balance of ₹1,000. This might help you figure out how much interest you'd pay if you didn't pay your complete bill.

• Convert the Annual Rate of Interest to a Daily Rate 

Since credit card interest is computed daily, you must convert your APR to a daily rate by dividing it by 365. As an example, if APR is 20%, then  20% ÷ 365 x 100 will give you a daily interest rate. In this case, it is 0.054%.

• Find out the Average Daily Balance 

You can accomplish this by multiplying the sum of the balances from each day by the overall number of days in every billing cycle. Afterwards, multiply that sum by the overall number of days included in the billing cycle.

 

Your average daily balance would be ₹1,000, for instance, if you have a balance of ₹1,000 on each day of a billing cycle of 30 days.

• Calculate Your Monthly Financial Charge

Divide the result by 365 days by multiplying your average daily balance by the annual percentage rate and the number of days in your payment cycle.

 

For instance, if you don't pay off the balance before the grace period expires, interest charges of ₹16.44 for one billing cycle will be charged to your balance and the minimum payment ((₹1,000 daily x 20% APR) ÷ 365) x 30-day billing cycle).

 

The interest will then be calculated again and added to your average daily balance each month until it reaches zero.

Here are some ways in which you can enjoy a better APR:

1. Maintaining a Good Credit Score: 

If you own a credit card, make sure to maintain a good credit score on the existing card. This will allow you to get a good credit card APR on the next card you apply for.

2. Avail Balance Transfer:

If you have multiple credit cards, you can transfer the balance to the card that has a low APR. This will allow you to enjoy lower interest values on your credit card debt. As a result, you will be able to clear your dues faster and can improve your credit score.

3. Display Good Repayment Behaviour: 

If you are making only minimum payments against your credit card dues, the extended credit on your card will accumulate interest. However, if you carry out your credit card bill payments in full every month before the due date you can prevent yourself from being levied with interest.