Most ads for credit cards push a variety of benefits you can enjoy - buying freedom, cash back, rewards and points. But one item they all push since for many it is the most important part in selecting the card is the credit card rate or the APR. The APR is the one feature receiving the most publicity in the ever-changing world of credit cards. Whether applying by mail, online or returning an application many consumers simply look for the lowest APR on a new card or when transferring balances and pick that card. Since the Annual Percentage Rate (APR) is the selection criteria it is important to understand the topic of credit cards and the rates they carry.

For starters, what exactly is the APR? In very simple terms the APR is the interest rate the credit card company charges you the customer for the money owed them. Generally, they charge this interest on any purchases not paid in full at the end of the billing cycle. When the credit card bill arrives each month it will contain the full amount required to pay off the balance along with a minimum required payment by a specific date.

In order to not have interest charges or late fees the bill must be paid within a specified number of days. You do have the option of paying in full, partial payment above the minimum or a minimum payment. If a full payment is received by the due date no interest charges are incurred. However, if anything less than the full amount is paid then an interest charge will be accessed. This interest rate is the APR, which the cardholder agrees to when they sign up for the card. Card companies use the annual percentage rate to calculate the monthly credit rate charges on the owed balance.

They take the previous balance - payment then multiply the unpaid balance by the interest rate. That total is added to the balance for the next month billing cycle. If partial payments are made the calculation process starts over again with the interest added again. This continues until the total balance is paid in full. This is why the APR is so important to minimize additional charges or assist consumers who want to get out of debt by paying as much as possible each month and lower the balance on their credit cards. Next time you receive a credit card application in the mail take some time to read about the APR - you'll soon discover how credit card companies make so much coin.

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