In a recent survey of credit card holders, 34% did not know the annual percentage rate (APR) charged by their credit card company. Defined as the annual charge for borrowing the banks money, the APR includes interest and other fees that the credit card company charges the cardholder for making purchases. Credit card companies are required by law to fully disclose all interest rates and fees including the APR, before the customer signs the credit card agreement. Knowing the APR charged by your credit card company is not particularly important if you pay off your balance each month, but according to the same survey, only about 29% of you do. This means that of the 71% of all card holders that carry a balance over from month to month, some of them do not do how much it is really costing them.

What Difference Does the APR Make?

As previously stated, a credit card’s APR makes no difference to the cardholder who pays his balance off each month, because the credit card companies do not begin to charge interest on purchases until a grace period of about 28 days has passed. To cardholders who carry a balance, a different APR can mean the difference between paying hundreds or thousands of dollars in interest and fees to borrow the same amount of money. It can also mean the difference between being able to pay off that balance in a shorter or longer period of time. A typical APR for customers with good credit may be as low as around 7% or as high as 21%. A $4000 balance on a credit card with a 7% APR costs the customer about $150 per year, at 21% the cost is about $365 per year. See the difference? These differences are not based on an individual’s credit rating or payment history, but strictly on the credit card or bank’s policy.

Fixed or Variable APR

Some credit card companies charge a “fixed” APR, while at other companies the APR is “variable”. If you are able to obtain a credit card with a low fixed interest rate, then the interest rate will not change over time. You will pay less for the privilege of borrowing the banks money and the bank or credit card company will not adjust the rate annually as is done with variable interest rates. However, even companies with fixed interest rates, because of something called “universal default” may charge higher interest rates to customers that make late payments, even if the payments were on a different company’s credit card. The bottom line; shop for a low APR, shop for a fixed APR and make payments on time.