Annual Percentage Rates, Periodic Rates and Variable Rates Explained
The annual percentage rate (APR) on your credit card account determines how much the credit that has been extended to you will cost over the course of a year if the balance is not paid in full before the end of the grace period. Annual percentage rate, when looked at from another perspective, will tell you exactly how expensive the credit balance you carry from one billing cycle to the next will be.
Credit card issuers will be required to prominently display in bold type exactly what the APR will be beginning on July 1, 2010. As of of right now the credit card issuers are also required by law to disclose the annual percentage rate charged on your account, but in many cases those numbers are buried in your statement and not easily identifiable.
Periodic Rate
The periodic rate measures the interest rate you pay during the billing cycle. A typical billing cycle will last in the neighborhood of 25-30 days, depending on the credit card issuer. It basically is a further breakdown of the annual percentage rate to correspond with the billing cycle. You can learn more about how APR and periodic rates are determined by visiting the United States Federal Reserve Board‘s web site.
Variable Rates
Variable interest rates are utilized by most credit card companies. It allows them to raise or lower the interest charged on outstanding balances at their discretion.Variable rates are often adjusted to coincide with adjustments made by the Federal Reserve Board to the Prime Rate. The Prime Rate is the interest rate that banks charge each other to borrow money.
As of July 1, 2010, the reform act that was recently passed by the Federal Reserve Board in order to protect account holders will prohibit credit card issuers from raising interest rates on existing balances.
Before you apply for a credit card we strongly recommend that you read the credit card issuers disclosure statement. In addition to understanding annual percentage rates, periodic rates and variable rates, you will also want to understand the terms and conditions set forth by the credit card issuer with regards to fees and other policies that will effect you.
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