Credit Card Interest Rates

When a financial institution agrees to lend you money, they will do so only if they are set to gain something too: in exchange for loaning you money, you will have to repay the amount borrowed plus extra 'interest'. The 'interest rate' indicates how large the interest charge will be and ultimately, how much your loan will cost. The interest rate is stated in terms of a percentage of the amount borrowed, which is usually the total percentage you must pay each year. Essentially, if the interest rate is five percent on a one thousand pound loan, you are charged fifty pounds interest over the year.

When you take out a credit card you will be informed of the interest rate. This rate is usually given as the total percentage you will pay over the year, the APR or Annual Percentage Rate. Credit card advertisements will feature the lender's 'typical APR'. This is the interest rate that applies to the majority of their credit card customers. You can compare the typical APRs of a number of card providers, to determine how good their particular offer is. The lower the APR, the lower the interest charge, and ultimately the less you have to repay.

The interest rate that applies to your credit card may differ from the typical APR. Although the majority of customers will receive the typical APR, your card provider may decide to offer you a different interest rate. When you fill in a credit card application, the lender will run a credit check to see how reliably you have repaid your debt in the past. If you have a good credit history, you should be offered the typical APR; if you have a poor credit history, the lender regards you as high-risk and will offer you a higher interest rate. Remember that interest on credit cards is compounded, and as such increases at a fast rate.