APR Credit Card - What is APR on Credit Card & How it Work

Understanding APR: Full Form and Meaning

While reviewing your monthly Credit Card Statement, you will come across a term called APR. The full form of APR is Annual Percentage Rate. It refers to the annualised % rate of interest that is to be paid by customers on unpaid dues on their Credit Card. Understanding APR and its impact can help you manage your finances better and ensure responsible Credit Card usage.

What is a good APR for a Credit Card?

A good APR is one that is lower than the average market rate, which can vary depending on overall market conditions and your creditworthiness. An APR between 40% and 50% is considered good. Credit Card companies assess your credit score to determine your APR; hence, maintaining a high credit score can help secure a lower APR. Since many Cards have variable APR linked to the Prime Rate, your interest rate may fluctuate based on how the Prime Rate changes.

Different Types of Annual Percentage Rate

1. Purchase APR

This is the standard APR, which is the interest rate applicable on all purchases made using your Credit Card, whether online or in-store.

2. Introductory APR

This constitutes a promotional interest rate offered for a limited duration, which is lower than the Card's standard APR, sometimes in the form of a zero percent introductory APR. It may apply to purchases, balance transfers or both. Once the introductory period ends, the standard APR becomes effective.

3. Cash Advance APR

The rate for borrowing cash from your Credit Card typically surpasses your Purchase APR. It does not come with a grace period.

4. Penalty APR

This is enforced for returned (declined) or missed payments. You may need to make several consecutive on-time payments before your Credit Card provider removes the penalty APR. Payments made over 60 days late may also result in a penalty APR being applied on your current balance.

The Function of the APR

After determining your APR, you can use it to compute the interest on your Credit Card balance. Use the following formula to determine the interest accrued during a given billing cycle:

Credit Card interest = [daily rate] x [average daily balance] x [days in billing cycle]

Daily Rate

You can ascertain this by dividing your Credit Card’s Purchase APR by the number of days in a year (365).

Average Daily Balance

Sum up your daily balances throughout the billing cycle and then divide this total by the number of days in the billing cycle. This figure represents your average daily balance.

To calculate your Credit Card interest, multiply your daily rate by your average daily balance, then multiply this by the number of days in the billing cycle. Keep in mind that interest compounds daily with most Card issuers.

How Does APR Work?

The APR of Credit Cards is the annual cost of borrowing money through your Card. You will pay interest based on your APR when you carry a balance (i.e., unpaid dues). Credit Card issuers determine your APR based on your credit score; a higher score typically leads to a lower APR. Most Cards offer a grace period, allowing you to pay off your full balance without incurring interest. However, cash advances and late payments usually attract a higher APR, making it crucial to understand how these charges can impact your finances.

The actual calculation of APR might vary depending on the Credit Card and the issuer bank's policies. ICICI Bank gives Credit Cards with APR starting from 45%. The APR is disclosed in the terms and conditions of the Credit Card, and it can change at any time, totally at the Bank's discretion.

To calculate the interest on your ICICI Bank Credit Card, you need to understand the relevant interest rate and your outstanding balance. The interest is charged on the unpaid amount. If you decide to pay less than the full amount, the remaining balance will incur interest.

Managing Credit Card APR to Save Money

• Know about your Card’s APR before spending

• Avoid making cash withdrawals using your Credit Card since they can carry high APR

• Choose to apply for Credit Cards with lower APRs 

• You can also convert big purchases into EMIs with lower interest. 

Conclusion

When it comes to Credit Cards, APR is a critical factor to keep in mind. ICICI Bank offers a range of Credit Cards with APRs based on various factors including the customer's credit history, purchase behaviour and repayment tendencies. As you compare Credit Cards, pay special attention to the different APRs listed in the Card's terms and conditions and whether or not they are variable or fixed.

FAQs

How can I manage and minimise APR charges on my Credit Card?

To minimise APR charges, consider paying your Credit Card bill in full each month. If that is not possible, aim to make more than the minimum payment to reduce the outstanding balance. Additionally, explore balance transfer options to help consolidate debt at a lower interest rate. At ICICI Bank, we offer specialised Credit Cards with favourable terms for balance transfers.

Does APR matter if I pay my Credit Card bill fully?

If you pay your ICICI Bank Credit Card balance in full and on time every month, the APR will not matter as much to you. However, if you carry a balance from month to month, the APR will determine the interest you will be charged on the outstanding balance.

Can I avoid APR fees?

Yes, you can avoid APR fees by paying your total Credit Card bill in full and on time every month. APR fees (i.e., interest charges) are applied only when you carry a balance from one billing cycle to the next.

Is APR charged monthly?

APR is expressed as an annual rate, but it is typically applied to your outstanding Credit Card balance on a monthly (or even daily) basis. If you carry a balance (unpaid dues), your Card issuer calculates the monthly interest based on your APR and adds it to your Credit Card bill each month. The monthly interest rate is derived from the APR by dividing it by

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