How does Creditcards APR works?
Hi,
I'd like to know how APR works.
Hipotetically, let's say you have a balance of 3000 and APR of 10%,
but is just a balance, you are not buying anything on that card ,
you are just paying off.
Does that mean every month there is an extra 10%?
Thanks!
Comments
The APR is a way for you to know the "true" interest rate on a loan ( credit card, home mortgage, car loan). If the interest rate is 9% on your credit card, but your card has a $300 annual fee plus $200 application fee, then the APR is 9.6%. It is your warning that you are paying more than the basic 9% interest.
If the APR and the true interest rate on your card is 10%, you will be paying $300 a year in interest on the $3,000 outstanding. The interest payment would be $25 a month.
There is not an "extra" 10%. Just the 10% that you pay for the use of the card.
This link is the best explanation I can find. It does a much better job than I could have done!
http://www.ehow.com/how-does_4925318_apr-work-cred...