What Is APR on a Credit Card? How It Works, Types, and More

ByVladana Donevski
June 14,2022

If you're like most people, you probably don't understand what APR stands for, let alone how it applies to your finances. However, you probably know that it affects how much you pay each month for your credit card bill, and if you’re running a business, understanding APR thoroughly is crucial.

So, what is APR on a credit card, and why is it important? For starters, every dollar matters when you are trying to get a new business off the ground. Even established companies with steady profits can have their cash flow messed up with poorly chosen APR; after all, credit cards should be all about saving on unnecessary expenses so that you can fund the important ones.

So, without further ado, this article will explain what APR is and how it works. We'll also discuss the different types of APR and how to avoid paying high interest rates.

What Does APR Stand for?

The acronym "APR” stands for “Annual Percentage Rate” and refers to the total share of your principal you will be charged within a year on your credit cards, personal loans, auto loans, or other lines of credit. This figure represents the actual yearly cost of borrowing funds, including any fees or additional charges that may apply, which is why it’s a more informative number than just the interest rate.

APR on a credit card can be fixed or variable, which will define how your APR is calculated. Fixed-rate APR means your credit card interest rate will remain the same for the life of your loan. Variable APR means that your rate can change over time, usually in response to changes in the market. 

Both have their up-and downsides: Fixed APR allows you to make long-term plans, but it might be costlier than necessary in the long run, if the market becomes favorable. Variable APR enables you to capitalize on a favorable market rate, but can also hike your interest up much higher than initially planned.

How Does APR Work on a Credit Card?

You should be familiar with the factors influencing your APR when choosing a credit card for your small business to ensure it won’t eat into your profits too much.

Your credit card interest rate will be based on your credit score, i.e., your credit history, amount of debt, and other factors. For example, if you have a good credit score, your card's APR will likely be low.

Other factors affecting the credit card's interest rate include the card type and prime rate (if you have a card with a variable APR).

The prime APR for credit cards is the rate banks charge their most creditworthy customers. The prime APR can change from time to time, depending on the federal funds rate and overall economic conditions. The prime APR tends to be higher when the economy is strong, and vice versa.

The prime APR is an important benchmark for other rates, including the rates that credit card issuers charge. Credit card issuers often use the prime APR as a starting point when they set their own rates.

What Is The Difference Between APR and Interest Rate?

The annual percentage rate (APR) and interest rate both describe the cost of borrowing money. However, the two concepts are actually quite different.

Credit card interest rates are simply the percentage of the loan amount the borrower will pay in interest charges over a year. APR, on the other hand, is a more comprehensive measure that takes into account not only the interest, but also additional associated costs, such as points, fees, and closing costs.

As a result, APR is generally higher than the interest and is a better indicator of the true cost of borrowing money for your business, especially if your company has a bad credit score.

How is Credit Card APR Calculated?

APR is the annual interest, but if you want to know how much you’ll be paying in interest per day, simply divide your APR by 365, and you’ll get your daily periodic rate. For example, if your APR is 15%, your daily periodic rate would be 0.041%.

To calculate the monthly credit card interest charge with an average daily balance of $1,000, you would multiply the daily periodic rate by 30, giving you an interest charge of $12.33.

Other Types of APR - Introductory, Cash Advance, and Penalty

While we are most familiar with the annual percentage rate (APR) for purchases, there are three more kinds of APR relevant for credit cards:

Introductory APR

This is the low- or no-interest period credit card companies often offer as a way to gain new customers. If your business is eligible for that, such a business credit card could be a good solution for covering the costs of inventory or equipment, especially in the initial phases.

An integral part of intro APR’s meaning is that it doesn’t last forever: Afterwards, it will revert to the standard rate for your card. Unfortunately, cards with introductory rates often have a regular purchase APR after a significantly higher grace period. If you can pull off paying your debt in full before the grace period ends, that would be the ideal arrangement.

Cash Advance APR

You'll pay this interest rate on cash advances from your credit cards. These interest charges are typically much higher than the standard APR, so it's best to avoid borrowing more money than you already have.

Penalty APR

This is the high annual percentage rate for a credit card you'll be charged if you make a late payment on your credit card bill.

How To Avoid Paying High Interest Rates

There are a few things you can do to avoid paying high interest on your card balance. First, try to pay off your balance in full each month to avoid paying any interest at all. Second, if you can't pay it, at least make your payments on time, as late payments mean higher credit card interest rates. Finally, you can transfer your balance to a card with a lower APR. If the special APR for that isn’t too high, it can save you money in the long run.

All in All

The takeaway is that different APRs can significantly impact your finances and business cash flow, so it's essential to be aware of them.

Now that you’ve had credit card APR explained, here are the key points: Avoid paying high interest by paying off your balance in full by the end of your monthly billing cycle, never miss a payment entirely, or transfer your balance to a card with a lower APR.

FAQ
Do I have to pay APR if I pay on time?

Yes, you do not have to pay an annual percentage rate (APR) for purchases on your credit card if you make your entire monthly payment on time, but you’ll be avoiding an increase in interest due to late fees and reducing your principal. The latter means the APR will be drawn from a smaller pool of money every month. Making timely payments is the best way to avoid paying high interest rates.

How do I lower my APR?

If you're unhappy with your current APR, there are a few things you can do to try and lower it. Start by paying your bill on time each month. Second, transfer your balance to a card with lower APR, or one with a zero-APR period. Finally, try negotiating with your credit card company for a lower annual percentage rate. If you have a good payment history and low balance, your credit card issuer may be willing to work with you and lower your APR.

Is a 24.99% APR good?

A 24.99 APR is higher than the average for business credit cards, which stands at 17.68%. However, the APR your business will be eligible for depends on multiple factors, including your business credit score, the type of card you are applying for, and more.

With that in mind, what is the APR on a credit card that would be good for your business? The answer depends entirely on your specific financial situation. If your business credit score is fair, taking out a credit card with a 24.99% APR might be the right solution.

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By Danica Djokic · June 24,2022
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Wildcard SSL Certificates Wildcard SSL certificates got their name because they can be used to secure multiple subdomains simultaneously. Wildcard SSL certificates provide the same level of encryption as a traditional, single-domain secure sockets layer, but they offer the added benefit of convenience and flexibility and can be a cost-effective way to secure multiple connection points. Multi-Domain SSL Certificates (MDC) Multi-domain SSL Certificates (MDC), as the name suggests, are digital certificates that secure multiple domains with a single certificate. They're an excellent option for organizations with several websites, subdomains, or even different locations across the globe, since MDCs are issued to an organization's headquarters. This makes MDCs a more efficient and cost-effective solution for large organizations than several Wildcard certificates. SSL Certificate Validation Levels These are simply the steps of confirmatory due diligence a CA must perform before issuing an SSL certificate. Depending on the type of website you want to use the secure sockets layer on, there are three conventional levels of validation: Domain Validation (DV), Organization Validation (OV), and Extended Validation (EV). Domain Validation SSL Certificates The first and most commonly used validation level, Domain Validation, only requires the CA to verify that the applicant has control over the domain listed in the certificate. For example, when you visit a DV-secured website, the browser confirms that the certificate was issued to that domain by checking for a DNS record or sending an email to an address at that domain. Organization Validation SSL Certificates Organization Validation is a slightly more stringent validation of SSL certification, requiring the CA to verify that the applicant controls the domain and that it is a legitimate organization. The CA will check whether the organization is listed in a business directory and its domain is registered to a valid physical address. Extended Validation SSL Certificates The highest level of validation, Extended Validation, requires the certificate owner to be vetted by the CA to the highest standard. This process includes a thorough review of the applicant's business by the CA, which can take up to several weeks before you can use the secure sockets layer certificate. The end result is that visitors to an EV-secured site can be assured it is operated by a legitimate organization that will keep their personal information safe. The Pros And Cons Of Using an SSL Certificate There are several benefits to using an SSL certificate on your website, so let’s discuss them first: It protects your visitors' information from being intercepted and stolen by hackers. It can improve your search engine ranking, as Google now factors in whether a site has an SSL certificate when assigning rank. An SSL certificate can give your visitors confidence in your website and build trust. Now that we’ve covered the main question - What is an SSL certificate used for? - and sold you on its benefits, it’s important to mention there are also a couple of cons to keep in mind when choosing your certificate: It can be costly as not all certificates or authorities are the same. As mentioned before, it will cost you $60 per year on average.  Ensure that you’re using a reputable certificate authority, as there is a chance that your certificate could be fake and provide no security benefits whatsoever. SSL certificates do not guarantee 100% protection from all hacking attempts - they just make it much more difficult for hackers to steal your information. In Conclusion SSL website security certificates are a vital part of online safety. They help protect website information from being intercepted and stolen by hackers, improve your search engine ranking, and build trust with your visitors. While there are some potential drawbacks to using an SSL certificate, such as the cost and possibility of fake certificates, the benefits outweigh the risks. If you're in the process of building a website for your business, or even already running an unsecured one, it's well worth your time and money to invest in an SSL certificate.
By Vladana Donevski · June 24,2022

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