Nowadays we all carry a credit card to pay conveniently anytime anywhere without having any funds. One of the most critical factors which need to be taken care of being of credit card interest rate. Its impact on the cost of carrying a balance on your credit card, which probably needs to minimize or even eliminate. For convenient and happy usage of credit cards, one needs to understand credit card interest rates, which, helps in better management and selection of best credit cards in the future.
Normally the credit card interest rate is charged as an APR or annual percentage rate. Banks share the APRs in the card disclosure and is mentioned on your billing statement along with each balance. In every billing, cycle the customer has a grace period during which he can pay his credit card balance in full and avoid paying interest. If someone makes a partial payment, then any balance left beyond the grace period will be charged interest in the form of a finance charge.
Finance charges are calculated in different ways depending on the credit card terms as agreed at the time of online credit card apply. Some banks calculate finance charges based on the average daily credit card balance, the balance at the beginning of the billing cycle, or the balance at the end of your billing cycle. Finance charges may or may not be included, new buying made on the credit card.
A credit card may vary based on different types of balances. For example, a credit card may have a purchase APR, the cash advance APR, or balance transfer APR. Each of these interest rates is usually different. Another type is the penalty APR that goes into effect when someone defaults on his credit card payment or make a late payment.
While making the payment to a credit card that has different balances with different APRs, any amount above the minimum payment must go to the balance with the highest APR.
There is another way of declaring the regular APR called a periodic rate, which is for a period of time less than a year. Periodic rates are usually based on a billing cycle of less than a month. In such cases, the formula to calculate the periodic rate is = (APR/days in a year) * days in a billing cycle.
Banks can increase credit card interest rate in cases: when someone default on his credit card terms, or when index rate increases, a promotional rate expires, or when there is a change in the debt management plan.
As a customer, you have the right of non-acceptance of the new interest rate and continue paying the credit card balance with the old rate. In such cases, the bank may decide to cancel the credit card, but this way we may avoid paying higher interest rates.
The best and simplest way to avoid interest is by paying the full balance listed on your credit card statement. You may use the credit card app to keep track of the balance and due date. In some other cases, like cash advances and balance transfers, because of the heavy amount and no grace period, it is not easy to avoid paying interest. Then the best option is to pay the balance off quickly. The more you know about the credit card interest rate the better you can utilize the credit card with its advantage and save money on interest in the long run.
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