What is Credit Card APR?
Credit card APR is the actual percentage of interest you will be paying yearly on your credit card. APR stands for Annual Percentage Rate. This is an estimate, and can be changed any time by the credit card company if you make late payments on your credit cards.
The Annual Percentage Rate is what will determine how much interest you pay through a year, rather than just the first flat interest rate that they often advertise, that will only calculate the interest from month to month, which calculation may be quite different from the yearly payment. The APR calculates the actual cost of the loan. However, it is dependent upon conditions concerning the payment regularity of the credit card holder and other conditions unique to the company.
One thing the APR does is it does not allow credit card companies the right to any hidden fees. It prevents them from giving you a freakishly low interest rate and then socking it to you in fees. A few of the fees that they are restricted from charging on the Annual Percentage Rate are: Escrow fees, notary fees, appraisal fees, recording fees, and transfer taxes. That is just to name a few.
How Annual Percentage Rates are calculated is a process that differs from credit card company to credit card company. There are several factors that contribute to this complex calculation, and each factor depends on the individual credit card company. One company may give you a great interest rate, but the APR could be totally out of your payment ability, when another company may give you the same interest rate with a lower APR.
There are certain fees that may be included and taken into consideration when credit card companies calculate your Annual Percentage Rate. These fees can also differ from company to company based on that company’s policy and your credit eligibility. Here are a few of those fees and how they work:
Origination Fees
Origination fees are charged to you for the work that is done by the credit card company in your behalf. It basically pays their employers for the time they spend handling your account and working with you to straighten out mistakes. This type of work they do includes checking your credit and preparing the legal documents that have to do with your credit card account.
Loan Processing Fee
This is the fee they charge you when you open an account. This is charged to you for the work they do to gather information so that they can process the loan, and the actual processing itself. This is also something that will affect the Annual Percentage Rate.
Underwriting Fee
Another fee they have is called the underwriting fee. This takes care of any of their expenses when considering you for a loan. It also takes care of the expenses they have for lending you the money on credit.