If you’re looking for a credit card, one of the critical factors you need to look into is the annual percentage rate (APR). The APR is a good indication of the amount of money you need to pay every time the credit card is used. It will also give you an idea about how much a cash advance and balance transfers will cost. A single credit card may have multiple APR including:
An APR for purchases, APR for cash advance, and another APR for balance transfer. The APR associated with cash advances and balance transfers are usually higher compared to the APR for purchases. For example, 14% may be charged for purchases, 17% for cash advance, and 18% for balance transfer.
Introductory APR. This is usually a promotional rate and the APR will be higher once the introductory rate expires.
Tiered ARP. There may be different rates used for varying levels of the outstanding balance. For example, 14% may be charge for balances below $500, 16% for balances above $500, etc.
Penalty APR. The APR will inevitably increase if you don’t make payments on time. For example, you will be charged more if your agreement states “If you twice pay late within a six-month timeframe, penalty rates will be applied.”
Delayed APR. Advertisement with lines like “No interest rates until January” basically just means that a different APR will apply in the future. Determine what the APR of the card will be after January.
Individuals who carry over any part of their balance from one month to another will benefit greatly from even a slight decrease in the APR rate.
Fixed and Variable APR
Some credit card companies offer “fixed rates” on the credit card. This means that the APR won’t change or at the very least, it won’t change often. In case the credit card company intends to increase the APR, you will be informed beforehand.
On the other hand, there are other companies offer “variable rates”. Here, the credit card APR is tied to a certain market interest rate such as the Treasury bill rate or the prime rate. If market rate change, your credit card APR will likewise increase or decrease. The terms of service provided in your credit card agreement will provide more details about the rate your APR will be based on.
The Finance Charge
Credit card companies offer a grace period to their clients. This is the allotted number of days wherein you don’t have to should the finance charge if the bills are paid in full. The grace period typically applies to new purchases only. Majority of credit card companies don’t offer grace periods for cash advance and balance transfer.
In addition, it is important to take note that individuals who have a pending balance from the previous month may not be given a grace period for new purchases. The credit card company may even charge an interest as soon as you make a payment. Look into the credit card agreement to determine whether new purchases and included in the interest payment.
How APR Affects the Credit Card Bill
If you are unable to pay your credit card bills in full every month, it becomes even more important for you to choose the lowest APR possible. The APR has a significant effect on how much money you need to shell out to cover the cost of your loan over the long term. For example, you have a balance of $1,000 on your card and the minimum required payment is only $20. It may look attractive on paper but the truth is you are actually paying more than you bargained for.
Consider a credit card with 15% APR. If you make only the minimum payment every month, it will take as long as six years to pay off the entire debt. In addition, you will need to pay an additional $546.18 to cover the cost of interest and other charges. Your $1,000 debt ballooned to $1,546.18. Just imagine what you have to pay if you use your credit card for a regular monthly charge of $1,000.
The scenario is worse for individuals with bad credit. As you continue to be late on your payments, your credit rating worsens and your credit card APR increases. And this does not even include the credit card fees, over limit fees, and late charges that will be charged on your bill.
Credit card companies change their APR based on the Federal Reserve Rate. You need to research on the most current APR by calling the customer service of the card you’re interested in, checking the card company’s website, or by visiting the MyBankTracker index chart.
How to Lower Your Credit Card APR
Negotiating with your credit card issuer is not as difficult as it appears. If you have a credit problem, you should approach your card company for help. You might even be shocked by how prepared some credit card companies are in accommodating your problem. After all, for credit card companies, lower APR is always better than defaults.
Even with this knowledge though, you should come to the negotiation prepared. Otherwise, the card issuer might not take you seriously. We have outlined some tips that will help you get a good bargain:
Collect Different Card Offers
If you are among the millions who receive 0% credit card offers in their mailbox, be thankful. Even if you’re not interested in any of these offers, it will give you leverage in the negotiation process. Letting your credit card issuer know that other offers exist will make them aware that you don’t need their services. You can reason out that it is only fair for you to be charged less especially since these offers are coming from card issuers you don’t transact with.
Organize the Credit Card Information
For consumers who own multiple credit cards, it is essential to make a list of everything. List the balances of each credit card you own, the interest rates charged, and whether the current rate is an introductory offer. From there, determine which credit card has the best APR and stick with it. Find out if transferring your other balances to this card is free or if the transfer charge is reasonable.
Talk with the Company Supervisor
Transferring card balances from one card to another does not solve the whole credit problem. You should do what you can to decrease your balance to the lowest possible level. Pick up a phone and start dialing your credit card company.
Your call will be answered by a customer service representative who doesn’t have the authority to give you a better deal. Ask them to transfer the call to a supervisor. You need to talk with someone who can lower your APR and waive the annual fee. However, be prepared for the representative’s objections because most are unwilling to transfer these types of calls to their higher-ups.
Appeal Your Case
Once an authorized person is on the other end, appeal your case. Inform them that there have been other offers from competing companies. During the negotiation, remember to be as polite as possible. Tell them that while you still want to use their service, you will be forced to terminate their service because of the unjustly high fees.
Being optimistic is good but you might not always get what you asked for. But remember that the majority of credit card companies will offer you something. It can come in the form of 0% interest rate for a certain period. Other companies might lower your interest rate by 1%. The success of the negotiation can vary in degrees. But the important thing is for you to get the best deal that fits your situation.
Simon Zhen is a research analyst for MyBankTracker. He is an expert on consumer banking products, bank innovations, and financial technology.
Simon has contributed and/or been quoted in major publications and outlets including Consumer Reports, American Banker, Yahoo Finance, U.S. News – World Report, The Huffington Post, Business Insider, Lifehacker, and AOL.com.