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Understanding Low APR Cards

12th February 2012

Although credit cards have become part of most people's lifestyle, their use as an additional source of finance should be considered carefully. Credit cards are a unique type of loan. The bank that issues the credit card will designate a certain amount - known as credit limit - which the cardholders can use in purchasing merchandise, but which must be re-paid each month. The amount to be paid comes with an interest. Credit cards have different annual percentage rates (APR), which depend on the issuing bank.

APR Defined

The annual percentage rate is the interest that the issuing bank charges its cardholders for using the services and taking advantage of its features. The APR determines the extra amount to be paid to the issuing bank if the cardholder fails to pay the due amount on time. Depending on the credit score of individuals, the bank may give them a credit card with a lower or higher APR.

Low APR Credit Cards

Now that the APR has been explained, it is equally important to understand that banks have varied annual percentage rates. In signing up for a credit card, it is wise to read its terms and conditions besides its features. Most often, the APR is indicated on the application form. Consumers should know whether the credit card has a fixed or variable interest.

Credit cards with a fixed APR are suitable for consumers who are not regularly aware of the fluctuations in interest rates. Meanwhile, cards with variable APRs are best for individuals with stable and strong financial capacity. This is also best for people who follow closely the interest rates in businesses. The following are what to look for before signing up the application form:

  • The APR after the introductory phase. Some credit cards have a low APR introductory rate. After the period has expired, the APR will go up. Some banks have an increase on the APR after the introductory period has lapsed. If this is the type of credit card introduced, know the annual percentage rate after the introductory phase and compare. Better yet, know the length of time of the introductory phase. The APR after the introductory phase typically ranges from 7.9% to 40%.
  • The interest charged on balance transfer. Most credit cards have this feature, which is truly attractive. However, the interest varies as well. There are banks that have a zero APR for its introductory phase, which can be between 3 and 24 months.
  • Other charges such as late payment fees. It is inevitable that cardholders may forget or unable to pay their monthly due on time for many reasons. Regardless, it is automatic that the banks will have an additional late payment charge on top of the amount due, which is already marked up with an interest.

Advantages of Low APR

The APR is a sure way for banks to earn their revenues. They do so by bestowing loans to consumers through credit cards. Most often than not, credit cards have high APRs. However, to attract more consumers, they reduce their APR for certain mechanics like balance transfers. Rarely do consumers have zero-balance on their credit cards. Credit cardholders with overdue outstanding balance may find it burdensome to pay even in installment. The best solution they can grab, nonetheless, is to transfer such balance to another credit card with zero or lower APR. As mentioned earlier, some banks have zero to a very low APR during the introductory phase. Consumers can take advantage of such feature and spread the installment payment throughout the introductory period.

Credit cards with a low APR offer the opportunity for cardholders to save money because it means lower interest rate every year or lower interest paid to the banks in case of non-payment in due time. Also, low APR credit cards have a choice of variable and fixed APR so consumers have more freedom and flexibility. Most businessmen and financially stable individuals choose to have a variable APR based on the monthly interest rates in businesses.

Credit cards are a useful tool in managing one's finances. If used properly, they can be a real advantage. Of course, individuals will benefit more if they choose a low APR card.