What is APR and how does it work?

2 minutes minutes read

Whenever you compare credit cards there is always the term “APR.” What does it mean though and why is it important?

What is APR?

Those 3 characters mean “Annual Percentage Rate” and that is an annual representation of the interest you pay to the lender when you borrow money. It represents the cost of the funds during the term of the loan. Your lender or creditor has the obligation of letting you know this information before any agreement is done.

How does it work?

It is calculated by the sum of an index (U.S Prime rate, for example) and the margin the bank charges. It can work as a fixed rate, where you have a determined rate for the loan/credit card that never changes. It could also have a variable rate, which is the most common, where your rate is determined by different factors, like your credit score and the whole economic environment.

In conclusion

Always compare all your options when applying for a credit card and choose the lowest APR in order to avoid paying a lot of money on interest.


Arturo Mendez

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