What You Need to Know About Finance Charges

Those Tricksters
Finance charges are the way credit card issuers make money off of you. The tricky thing is that there are so many methods for calculating how much money you owe. Some methods can save you money and others can have you left with an empty wallet.

For simplicity’s sake, finance charges can be viewed as being the same thing as your interest, since many credit cards these days are cutting back on the amount of fixed fees. Finance charges are the cost of using credit, which in actuality includes both interest and fees.

Since there are so many ways credit card issuers can calculate you finance charge, we well explain some of the basic ones here, ranging from methods that experts say can save you money to others that will have you paying more then you should.

Easy on your pocket. Adjustable balance is the most common sense method for calculating finance charges and is what experts consider the method for saving you money. To calculate the finance charge, credit issuers take the balance from the previous statement, add the new charges and fee, subtract the payment that you make, and then multiply that number by your interest rate for that period.

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What You Need to Know About APR

Credit Card APR
APR stands for annual percentage rate.  For credit cards, APR is usually the same thing as the normal interest rate.  This is because credit cards are cutting back on the amount of fees to attract people like you.  APR can be tricky, so keep reading to learn more!

About APR
APR represents the cost of having a balance on a loan or credit card for the duration of a year.  It includes fees and the cost paid to acquire the loan.  APR is used to standardize the way rate is expressed, so that it is easier for people to compare lenders and issuers.  The basic concept is that APR is a percentage of the amount you borrow that you must pay in addition to the amount you borrow.  For example, if your APR is 5% then you pay an additional $5 for every $100 you borrow each year.

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Credit Terminology Overview

Annual Fee
An annual fee is a yearly charge by a credit card company, typically ranging from $15 - $300.  However, to attract potential card holders, many credit cards do not have an annual free.

APR (Annual Percentage Rate)
APR represents the cost of having a balance on a loan for the duration of a year.  It includes fees and the cost paid to acquire the loan.  APR is used to standardize the way rate is expressed, so that is it easier for people to compare lenders and options.

APY (Annual Percentage Yield)
APY is the percentage of a bank account deposit which you are awarded for leaving your money in a bank account over a year of time.

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