Battle of the A.P.R.'s

Which rate is better?

The chart looks at two Annual Percentage Rates [A.P.R.]. To the left, is the Promotional A.P.R. and to the right, the Standard A.P.R., for a credit card over an eight month period of time.Annual Percentage Rate [A.P.R.]

An A.P.R. is the amount interest slapped on a loan over a period of time.

There are Variable A.P.R.'s and Fixed A.P.R.s'.

Variable A.P.R. is movable and the movement is usually to a higher rate.

Fixed A.P.R.'s are not movable. They will not go up.

How the A.P.R. is calculated for any credit card is very confusing. I've studied credit card terms and conditions for many hours, but I have never been able to figure it out on my own.

Instead of trying to figure out how the A.P.R. is input and calculated, I advise my clients to look at the outcome.

For example if you have a credit card balance of $3,000 at 16.24%, and you are paying the minimum, you will pay over $5,000 in interest alone and over $8,000 total. That is a very bad outcome.

Short-term Promotional Annual Percentage Offer

A short-term promotional offer is a variable rate trick used by credit card companies to lure new customers and to keep existing customers. The credit card company will often off a low interest rate for a specified period of time (generally between 3 - 12 months).

If you charged $3,000 on your credit card at a rate of 2.99% you would only pay $371 in interest for a total payment of $3,371. A much better outcome.

If your monthly minimum payments are high, a short-term promotional rate can help you save money over the short-term. But if your minimum payments are low, there's not much benefit in having a short term promotional rate.

Standard A.P.R.

Standard A.P.R. the normal rate on your credit card. Once your promotional rate ends, your Standard A.P.R. will be slapped onto your account. A high (13% and up) standard A.P.R. will skyrocket your debt and minimum monthly payment.

You can lower your standard rate after the promotional rate expires, but it will be very difficult.

My opinion

If you credit card company is offering you only a short-term A.P.R. adjustment, then you should look to do a balance transfer to a lower rate card. Many cards will allow you to do a balance transfer to a their product.

As soon as you get a promotional rate offer, start shopping around like me on Christmas Eve. Check all of the offers that you get in the mail for a lower fixed rate. You'll be surprised at how many great credit card offers are waiting for you.

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