APR is the total cost of borrowing money, expressed as a percentage of the total owed, applied per year. Let's say you charged $1,000 for merchandise and your APR is 24%. In a year, you'd owe $1,240. That's the $1,000 you owe plus $240 in interest and fees (24% of $1,000).
Most commonly, APR is "compounded" – or applied – monthly. This can make the math a bit trickier. That means you're charged 2% each month. If you owe $1,000 at the end of your monthly statement period, you'd be charged $20 in interest. Your total due would be $1,020. If you made no payment, you'd be charged interest on the new balance, which is now $1,020. Interest and fees for the second month would be $20.40.
That extra $0.40 might not seem like much, but it adds up over time. As Albert Einstein once said, the most powerful force in the universe is compound interest. Lowering your APR means your monthly payments and total costs will be lower. In many cases, it also means getting out of debt sooner.
When shopping around for cards, compare the APR to secure one with the best deal and lowest APR possible. You can also call and speak with your current credit card company to see what options there might be to lower your APR.
PrimeWay is a Houston based credit union that offers a number or credit card options with some of the lowest rates available. For more information, check out our Credit Cards page.
To empower you as a consumer, it’s important to understand the APR (Annual Percentage Rate) and how it impacts your purchases.