A Complete Guide to APR on Credit Cards

If you own a credit card, you’re already aware of the convenience and ease it poses in daily transactions and other financial dealings. However, you may be stumped by certain technicalities associated with these cards, such as an APR. To understand more about what this term means and how it can govern your usage of your credit card, let's break down the elements that make up an APR. 

APR stands for Annual Percentage Rate. This means that:

• This rate denotes the amount you will be charged as interest for borrowing money through a credit card.
• In other words, an APR refers to the annual interest levied on your balances that are carried forward at the end of your billing cycle.
• Different cards may have different metrics for calculating an annual percentage rate.
• If your credit card has a low annual percentage rate, it means that borrowing money through it will be substantially affordable.
• However, if your credit card has a high APR, you will need to cover higher borrowing charges.

To ensure that you’re making optimal use of your credit card, it’s a good idea to understand the different APRs and how they can affect your card usage. 

1. Purchase APR

   • If, for some reason, you are unable to repay your credit card dues by the due date fully, interest is charged on the balance at a rate known as Purchase APR.

   • This means that you will be liable to pay the interest charges as per the purchase APR along with the balance amount if you haven’t cleared your credit card bill by the end of the billing cycle.

   • Most transactions you carry out on your credit card will be subject to this form of APR.

2. Cash Advance APR

   • Most transactions you carry out on your credit card will be subject to this form of APR.

   • This type of interest rate is applied when you use your credit card to withdraw cash.

   • These advances are convenient, but you must note that the interest charged on these withdrawals may be higher than that imposed by a Purchase APR.

3. Penalty APR

   • As the name suggests, not paying your credit card bills on time will incur a penalty fee.

   • Generally, the rate charged is higher than normal interest rates.

   • Credit card issuers can reserve the right to charge a penalty fee if you exceed your credit limit or are unable to make credit card repayments on time.

4. Balance Transfer APR

   • When you transfer outstanding balances from one credit card to another, a charge is levied. This is known as the Balance Transfer APR.

   • Transferring balances has its benefits, especially when you’ve missed your repayment due date.

   • You can transfer the balance to another credit card that may charge a lower interest rate.

5. Introductory APR

   • Credit card companies will often initiate programs to entice potential customers or to reward existing ones.

   • One of these is the Introductory APR, a temporary promotional interest rate.

   • This type of APR can be levied on both purchases and balance transfers.

   • It is often lower than the standard purchase APR.

There are various steps and measures you can take to calculate credit card interest using APR. These are as follows:

1. Get Your Financial Statements in Order

   • You can begin by assembling your credit card statement.

   • This can include your outstanding balance, annual percentage rate, and the number of days in the billing cycle.

2. Keep Track of the Daily Interest Rate

   • Determining the daily interest rate will enable you to stay on top of your finances.

   • You can calculate this by dividing the APR with the number of days in a year.

3. Decode the Daily Interest Charges

   • You can figure out daily interest charges by multiplying your outstanding balance by the daily interest rate.

4. Understand the Monthly Impact

   • You can get a more comprehensive view of your monthly interest statement by calculating it.

   • This can be done by summing up your daily interest charges for each day in your billing cycle.

5. Be Aware of the Minimum Payment

   • To keep your account up and running, you will generally need to pay the Minimum Amount Due during your billing cycle.

   • However, you should note that this may only cover a portion of the interest charges and the principal amount.

6. Review Your Statement

   • It is imperative that you thoroughly evaluate your financial statements.

   • Examining your credit card statement will help you verify whether or not the interest accrued by you is accurate and matches your calculations.

7. Make Informed Payments

   • You can stay on top of repayments by keeping an eye on your credit card bills.

   • Making payments regularly and clearing your dues before the due date will help you minimise interest charges.

Paying your credit card balance in full by the due date eliminates APR entirely, as interest only applies to carried-over balances. Here are other tips to help you reduce APR charges over time. 

• Automate Payments: Set up auto-debit for the total credit card bill, so you can avoid minimum payments that accumulate interest on unpaid dues 

• Keep Utilisation Ratio Low: Using under 30% of your limit increases your creditworthiness, thereby ensuring you get cards with lower APRs going forward 

• Negotiate Lower APR: If you have a good credit score and a high income, you can request that issuers offer you cards with lower APRs

• Balance Transfer: If you have a large credit card balance to pay off, shift your balance to a card with a 0% introductory APR to save a significant amount as you repay

Having a credit card with low APR could considerably help you save on interest. Here’s how you can get one for yourself:

1. Explore Your Options and Compare Fees

   • There are a variety of credit cards being circulated in the market.

   • If you do your research right, you should be able to find one that best caters to your needs and also has a low APR.

   • You can also compare fees for different cards and ultimately decide on one that has a reasonable annual fee.

2. Maintain a Steady Income and Employment Stability

   • A consistent source of income can boost your chances of acquiring a credit card with a low APR.

   • Another factor that can contribute to this endeavour is a stable employment history.

3. Be Selective with Applications

   • Applying for too many credit cards at once can negatively impact your credit score.

   • This, in turn, may affect your credit history and your chances of obtaining a card with a low APR.

4. Pay Your Dues on Time

   • When you pay your credit card bills on time, you not only ensure a higher credit score but also a lower APR.

   • You will also be able to avoid penalties and high interest rates.

Thus, it is important to consider all the factors that can impact or improve your chances of obtaining a credit card with a low APR. If you carefully explore all your options, review your financial statements, and take the right measures to maintain a healthy credit score, you will be eligible for cards with low interest rates. This will help you maintain your finances and advance towards a more secure future.

APR on credit cards in India usually ranges from 24% to 50%. In most cases, any APR that is below 30% may be considered good. 

In India, the Annual Percentage Rate (APR) on credit cards refers to the yearly cost of borrowing. While expressed annually, interest is usually calculated using the Average Daily Balance method. How it’s calculated:

• Daily Periodic Rate: The APR is divided by 365. For a 42% APR, the daily rate is approximately 0.115%

• Daily Interest: This rate is multiplied by your outstanding balance each day

• Monthly Charge: The daily interest charges are summed up across the billing cycle (e.g., 30 days)

Yes, you can avoid paying APR on credit cards in India by paying the full statement balance by the due date. Interest only applies to unpaid balances and when you take a credit card loan or cash advance. 

Yes, paying the full credit card bill by the due date each month avoids APR charges. This helps you leverage the interest-free grace period, ensuring no interest applies to new purchases.

It is the interest you pay on your credit card bill every month when you carry forward a balance. So, penalty APR applies only when you don’t pay the total amount due by the due date. To avoid penalty APR charges in India, pay the total outstanding balance.  

To get a credit card with a lower APR in India, you need to improve your credit score and show proof of high income. This reduces the issuer’s risk, which allows them to offer you cards with low interest rates. 

Yes, credit cards in India typically apply different APRs for purchases and cash advances. With cash advances, the interest rate may be higher, and there may be no grace period offered for repayment. 

Credit card APR in India applies daily on outstanding balances, using the Daily Periodic Rate (DPR). The DPR derived from dividing the annual APR by 365.

GST at 18% is levied on credit card interest charges in India, increasing the effective cost of maintaining an unpaid balance.

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