When you get a loan for yourself, you have to pay EMI. The EMI contains two things: principal and interest. The principal means the amount you borrow, and interest means the extra amount you pay.
APR's full form is Annual Percentage Rate. APR in credit cards means the interest you pay the card issuer if you do not settle your credit card bill within the first due date. It is the amount you might have to pay for making purchases or withdrawing money using your credit card.
Financial institutions use the Daily Periodic Rate (DPR) to calculate the interest amount you owe. Here is the formula and example of credit card APR calculation:
Interest = [DPR] x [Average Daily Balance] x [Total days in the billing cycle]
Example: Here's a APR calculation to help you understand better.
Imagine purchasing an item worth INR 50,000 with your credit card and planning to clear the due amount after thirty (30) days of the first due date. Now, if your card issuer charges an APR of 15.99%, your DPR becomes 0.0438%. Assuming the ADB is INR 50,000, here's how you should calculate the interest:
Interest = 0.0438 x 50,000 x 30 = INR 657.00
So, in this case, the credit card APR works out to INR 657.00.
Understanding credit card APR is vital to making the most of your card. But, before calculating the APR, you need to know the DPR, average daily balance, and total days in the billing cycle. And if credit cards make you uncomfortable, check out Fi Money to get pre-approved instant loans of up to INR 5 lahks. Fi Money's paperless instant loans come with affordable interest rates and save you from the hassle of paying exorbitant APRs.
You can calculate credit card APR by multiplying the Daily Periodic Rate (DPR) by the Average Daily Balance (ADB). After this, you have to multiply the figure by the total days in the billing cycle.
Although financial institutions calculate the APR annually, you have to pay the interest monthly. Card issuers use a simple formula to get one-twelfth of the annual appeal. But, the interest applies only when there is a balance on your credit card.
You can avoid credit card APR fees by paying the outstanding amount by the due date. Also, do not buy any new products with your credit card unless you are sure of settling the outstanding balance.
No. Credit card APR kicks in when you carry forward your credit card balance after the first due date. You don't have to worry about the APR if you pay the outstanding amount in full.
it may be calculated and charged differently by different lenders. In general, APR is not charged daily. Instead, the interest charged on a loan is typically calculated on a monthly basis.