Definition and examples of the annual percentage rate for purchases
How does the annual percentage rate for purchases work?
Types of annual percentage rates for purchases
Definition and examples of the annual percentage rate for purchases
The annual percentage rate for purchases is the rate that is calculated on the purchases made using your credit card. The annual percentage rate for purchases is applied to the balance of purchases to calculate finance charges during the billing period, when applicable. For example, when you make a purchase using your credit card and carry the balance into the next billing cycle, the annual percentage rate for purchases will be applied to the unpaid portion of the balance.
Alternative name: Standard purchase annual percentage rate
Abbreviation: APR for purchases
How does the annual percentage rate for purchases work?
Credit cards often have multiple transaction categories – purchases, balance transfers, and cash advances – with different interest rates for each category. The interest rates for each of these categories may vary, depending on the credit card issuer.
The annual percentage rate for purchases specifically refers to the rate that is applied to the purchase balance that is carried over after the grace period, which is the period between the end of the billing cycle and the due date. Typically, you can avoid paying interest on the balance by paying it off in full during this grace period.
There may not be a grace period for purchases if you did not pay your balance in full in the previous month. Additionally, if you pay your balance in full in some months and not in others, you could lose the grace period for the month you did not pay in full and the following month. This includes balance transfer balances and cash advance balances.
While the annual percentage rate for purchases is typically expressed on an annual basis, many credit card issuers calculate finance charges for purchases using a daily balance or average daily balance. In this case, the annual percentage rate for purchases must also be adjusted to a daily periodic rate for purchases or DPR. With an annual interest rate of 15.24%, for example, the daily periodic rate would either be 0.0417% or 0.04233% depending on whether the credit card issuer calculates interest based on 365 days or 360 days in a year.
Types of annual percentage rates for purchases
The annual percentage rate for purchases can be fixed, variable, or promotional. Each type of annual percentage rate for purchases is explained in detail below.
Fixed: When the annual percentage rate for purchases is fixed, it does not change regularly. Credit card issuers can raise the interest rate on existing balances only under certain circumstances, for example, if you are 60 days late on a payment. After the first year, a credit card issuer can raise the annual percentage rate for purchases on new purchases for any reason as long as you are notified 45 days in advance and given an opportunity to opt-out of the interest rate increase.
Variable: The variable annual percentage rate for purchases will change periodically because it is based on another interest rate, such as the prime rate, which moves with the market.
Promotional: With a promotional introductory offer – which must last for at least six months – the promotional interest rate is applied to the purchase balance instead of the standard interest rate. Under a 0% promotional interest rate, no interest will be charged on purchases during the promotional period, even if you do not pay off your balance in full. After the promotional period ends, the regular annual percentage rate will apply to any existing balances and new purchases. In all cases, credit card issuers must disclose all interest rates applicable to the credit card and inform you of how to avoid paying interest on purchases.
Source:
https://www.thebalancemoney.com/what-is-purchase-annual-percentage-rate-apr-5196615
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