Today’s Un-Stupid Question you’re too afraid to ask is “What is an APR on Credit Cards?”
When you use a credit card, you’re basically borrowing money from the credit card company. But borrowing isn’t free; they charge you for it if you don’t pay it back on time.
The price you pay for borrowing that money past when it’s due is called APR. Which stands for “Annual Percentage Rate.”
Lets say your credit card has an APR of 25%, and you spend $100 on it.
At the end of the month, if you pay the card company back the full $100, you don’t owe any more.
But if you don’t pay back everything, you’re charge a fee they re-calculate everyday.
They take your annual rate of 25%, and divide it by 365 days a year to get a daily interest of 0.068%.
The first day you owe $100 plus an extra $0.07.
After 90 days, you’d owe $100 plus and extra $6.21.
In a year, you’d owe $100 plus an extra $28.30.
Don’t forget, most card companies charge a late fee if you don’t pay, of around $15 to $30.
So if you don’t pay for a year, with a $25 monthly late fee, you’d actually owe $465.96, on that original $100.
Pay your card off every month, and you don’t have to worry about APR.
