APR stands for Annual Percentage Rate and is the key ingredient in comparing loans and credit cards. What exactly is an APR? It represents the total cost of borrowing money over the period. APR is what drives your borrowing limit and determines what you will pay in the end.
Credit cards, loans, store cards, and personal loans all use the APR as their underlying interest rate. APR varies based on the lender. In general, the higher your credit card debt, the higher the interest rate that lender will charge you on your monthly card balance.
A variable APR is one that changes based on the Bank of America rate at the time of billing.
If you have a variable APR, when you receive a bill at that time, the rate may be higher or lower than the Bank of America rate. Variable APRs can make a great deal of sense if you have a large bill that you can wait to receive your bill after tax season has ended. However, a variable APR makes little sense for most people. Here are a few things to think about when choosing a card issuer:
The prime rate is the rate at which Bank of America charges their clients.
Annual Percentage Rate prime rate is generally higher than the rates for loans, credit cards, and savings accounts offered by other banks. For many consumers, a card issuer will offer a lower interest rate, in exchange for an annual fee, if you maintain a balance with them for a year or more.
o Grace Period
A grace period, also called a “special interest rate” APR, lasts only a specific amount of time before the interest rate becomes standard. Generally, a grace period of one year applies to balances transferred from credit cards that are closed during this period. Balance transfers between credit cards and other types of purchases are subject to this grace period. However, you should realize that if you pay your balance in full each month, the longer you have your grace period, the less APR you will pay. Also, keep in mind that a shorter grace period will cost you more money because of the higher interest rate.
No Purchase APR
A credit card issuer may offer a zero percent APR, or a low introductory APR for a specified period of time. During this time, a customer who maintains a credit card balance will be charged interest on the balance regardless of how much he or she pays. The credit card issuer may also charge late payment penalties if payments are not made on time. Keep in mind that a business that issues debit cards often charge a much higher interest rate than those issuing credit cards. It would be wise to compare a credit card APR to that of a business’s APR to see which option offers the lowest overall interest rate.
Balance Transfer APR
Some lenders provide special rates for balance transfers, and these can sometimes be very attractive. Be sure to read all terms and conditions carefully so that you do not end up being taken advantage of by transferring the wrong balance. If you are transferring a high interest debt such as store credit cards, you can save if the balance transferred to a lower interest bearing account has a low fixed rate.
Business Credit Cards
APR is also important to business owners. Many business credit cards have a set interest rate and some even tie it to the prime rate on their loans. These types of cards to make business owners pay more interest because they carry a higher balance. Also keep in mind that these business credit cards have separate card accounts that may carry a higher interest rate than other accounts.