The 4-1-1 on That Credit Card Apr
Contributed by Alix Mcmurray
The 4-1-1 on That Credit Card APR
It is a fact of life that most of us get many, many offers in the mail and even online, promoting a time-limited, special APR credit card. But what is behind all this hype? If you're not independently wealthy, you need to know what an APR is, how it is calculated, and how it can change.
That APR on Your Credit Card is Your "Rent"
APR is an abbreviation for annual percentage rate. It is, essentially, the cost of having and maintaining credit, expressed as an annual rate of interest you pay on the purchases you make through that credit card. You can consider APR as the "rent" that you pay for the privilege of using credit as a means of financing what you buy. Bear in mind that when you first sign up for a credit card, you may be offered an introductory or "teaser" rate.
This is usually an interest rate significantly below the market rate. It is offered to you specifically as an inducement to choose that particular credit card. Once your introductory period is over, your APR will definitely increase. Otherwise, the credit card company would not function as a for-profit business.
All Things Change, Even Your Credit Card's APR
Your credit card's APR can be fixed, that is, constant, or it can be variable, that is, subject to change under differing conditions. These conditions are usually changes in the Federal Funds Rate, which is the interest rate charged among banks when conducting overnight transactions at the Federal Reserve. When a fixed rate credit card changes, the credit card company must inform their account holders, allowing them the option to cancel their card.
