Summary:
What does Credit Card APR mean and why is it important to understand when trying to compare two different financial products? |
APR - Annual Percentage Rate
Financing and other forms of lending are complicated for most people to understand. Even armed with the calculation formulas the finance companies , they would still be completely lost.
Governments and the Financial Regulators recognise this. They have therefore put in some safeguards to protect consumers and to make sure they have some standard information to compare different interest rates and other associated charges.
- The Annual Percentage Rate (APR) attempts to create a single figure of interest and finance charges so the consumer can compare like with like
- The main point with APR is that it not only considers the interest rate charged but also other associated costs and fees
Without APR it would be impossible to make quick comparisons between different financial products as all finance companies use different calculations to calculate their interest and other charges.
If no APR figure is would be possible for a Credit Card bearing an 'advertised' interest rate of 12% (not APR) to be more expensive than one charging 20%. Financial figures are easily exploited by clever marketers so the government, by making them use APR, creates some order to the madness.
The conclusion of APR is this: It's not perfect but it does give the consumer a better understanding when comparing products.
But with Credit Cards if you want to find out the best deal (if you use the card to borrow money) then you have to look at how the companies calculate their interest.
