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How is APR calculated on credit cards?

April 26, 2017Apr calculated credit cards

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How is APR calculated on credit cards?

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What is an APR? An APR is the acronym for annual percentage rate. Your annual percentage rate is, basically, the interest rate on your credit card, but it’s conveyed as a yearly rate vs. a monthly rate. Essentially, your APR is the price you pay per year for using your credit card. Your credit-card company is required under the Truth in Lending Act to disclose what your APR is by including the rate on your written credit-card agreement. You also can find your APR on your credit-card billing statements. The Formula to Calculate APR Once you have verified your APR, you need to determine how your finance charges are conveyed on your billing statement. There are two ways your credit-card company can do this: monthly or daily. This process is more commonly referred to as a periodic rate. To calculate using the monthly periodic rate, you need to divide your APR by 12. So if your APR is 12 percent, then the monthly rate is 1 percent. To determine your monthly finance charge, you multiply your