What Exactly is an APR

APR. We see that acronym on advertisements and commercials constantly, but do you know what it actually means? Unfortunately, too few understand this concept fully, and it is a rather important concept to know when dealing with credit of any kind. Fortunately, it is rather easy to understand and can save you tons when credit shopping!

To start, APR stands for Annual Percentage Rate, and is a numeric representation of your interest rate; essentially it is a way to measure the cost of borrowing money. Thus, when deciding which credit card best suits your needs, comparing APR rates can tell you how expensive each transaction will cost when carrying an outstanding balance.

The APR is decided by first considering the US Prime Rate, and then adding the bank fee margin:


US Prime Rate + Bank Fee = APR

Thus, the amount that you will pay daily on your outstanding balance, or your DPR (Daily Periodic Rate) is understood as the current APR rate divided by 365 (days within an annual year).

APR / 365 = DPR

*All accounts are different and subject to differences than shown above. View your statement for unique details to your own personal APR calculations.
There are generally four different kinds of APR that differentiate between cards and accounts.

1.    Purchase APR – This is the APR interest rate applied to general credit card purchases.
2.    Cash Advance APR – This is the cost of CASH borrowing from your credit card, and this APR rate tends to be higher.
3.    Penalty APR – This is the highest APR, and is usually applied when users violate the terms of the card, usually resulting from late or failed payments.
4.    Introductory APR (Promotional APR) – This is usually a promotional offer for a lower APR rate for the specified period of time that is used to entice new customers.

Sources: Bank of America

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