What is APR?

The 2 Ms that most humans love in their lives are “Mystery” and “Money”. And who higher than bankers to mix each? Yes, there’s mystique on how cash is made and revolved in the machine. One such mystery floating within the credit cards space for many years is an abbreviation that maximum have heard of, but no longer many have unraveled yet, is “APR”.

So what is this APR?

If credit card holders do no longer pay their bills in complete, they ought to pay interest on their brilliant balances. An annual percentage rate (apr) actually refers back to the interest charged on the money that’s owed for purchases made using the credit card. So easy yet infrequently understood. Very few cardholders are aware about how apr is calculated or maybe what the present day rate on their existing credit cards is.

Why should you bother about APR?

Anybody who uses a credit card should recognize how “annual percent rate” (apr) works, whilst it’s applied, and the way sound financial practices can assist avoid or lessen your interest burden. And greater importantly, you could benefit from the hobby unfastened credit duration that credit score cards provide you.

So let’s peel the onion and apprehend how is this apr levied

the interest is calculated on credit cards using the formulation:

Credit card interest = [daily rate] x [total daily balance] x [number of days in billing cycle]

. Divide your credit card’s transaction APR by 365 to get the daily rate. (Some banks use 360 days). If your annual percentage rate is 18%, your daily rate is .00049%.

. Upload up your quantities at the conclusion of each day of the billing cycle and divide the full with the aid of the variety of days in the billing cycle to get your average daily balance. This is your each day average balance.

. Subsequent, multiply your every day interest by way of your daily average balance, and multiply that sum through the quantity of days within the billing cycle. Maximum issuers compound their interest day by day.