What is APR in Regards to a Credit Card?
The APR or annual percentage return of a credit card refers to the fees attached to an outstanding balance. The APR, in essence, is the interest rate for borrowing or using a credit card. The APR only affects those individuals who do not pay off their balances in full each month. For example, if an individual only makes the minimum payments, the APR will be factored in as a percentage rate to the rolled-over amount.
The APR is delivered as a yearly percentage. This numerical figure represents the percentage for borrowing and subsequently not repaying the loan obligation in full each month.
For example, if an individual possesses a credit card with a credit limit of $1,000 and an annual percentage return of 20% their monthly interest for an outstanding balance would be 20%/12 or 1.6667%. This percentage is multiplied by the outstanding balance that is not paid in the previous month’s billing cycle.
Using the above example, if the holder only satisfied the minimum payment or $15, they would be charged $985X1.6667%, or an additional $16.40 in interest fees.
The above figure may not seem significant, but if the outstanding or owed balance keeps increasing the holder will be required to pay increased interest fees. Over time these fees can have a snowball effect and leave individual in a financial state of flux.
What is a Credit Card Interest Calculator?
A credit card interest calculator is a free resource offered by various financial and lending institutions which enables a borrower to view the effects of APR on their monthly bills. More specifically, the credit card interest calculator will effectively show the amount of interest in a lump sum form which the individual will be forced to pay if they only pay a portion of their credit card bill.
The credit card interest calculator factors in the monthly APR against the total balance of the card, using the individual’s monthly payments. The calculation awarded by the credit card interest calculator will reveal the total amount of interest an individual will pay given their circumstances and pay-off habits.
The credit card interest calculator is extremely simple to use. The basic credit card interest calculator will only require the fulfillment of a few basic components to yield the expected results. For example, a generic credit card interest calculator will ask for your current credit card balance, meaning the amount owed, the interest rate or APR attached to the card, your average monthly payment, and the amount of time you would like to calculate your interest charges.
Example of a Credit Card Interest Calculator
The following example will contain the following variables: the individual’s credit card balance is $1,000, the APR attached is 20% and the average monthly payment is $75. In addition, the amount of time the individual would like to calculate their interest charges using the credit card interest calculator is 6 months.
When these numbers are inputted into the credit card interest calculator the resource will reveal the following result: “You will pay $85.08 in interest charges over that time period.”