APR, Interest Rates and Benefits

Often there is a lot to consider when deciding to own a credit card. However the choice can be made a lot easier when taking into account three simple elements: interest rates, benefits and APR%.

At the heart of owning a credit card, interest rates are the most important factor to be considered. Many individuals go into banks applying for credit cards having not fully understood the complications of a credit card. Most of these complications arise from the interests rates applied to the card. An interest rate, simply put, is the amount of money you will be paying back to the bank in turn for their service when using a credit card. Basically when a card is swiped in an eftpos machine, the funds used to purchase an item come from the banks supply of endless money. At some point in a month, you receive your credit card statement with all your purchases documented and a due date supplied for when you are required to pay back the bank for their used money. When paying back this money, a predetermined amount (known as the interest rate), is applied for which the lender generates a profits from the borrower.

Understanding interest rates is essential as the lower the interest rate, the more you will benefit as a borrower as you would want to pay back the lowest possible amount of money to a bank. Generally most banks offer a variety of credit and debit card options to help you optimize your money such as Westpac with their wide range including Altitude, Earth, Gold and Platinum cards.

Benefits and rewards are often taken for granted with most individuals, as they tend to forget that lenders should provide incentives to customers for using their services. Different banks offer different types of reward benefits. Some such as Westpac offer points which customers can redeem for flights and other rewards such as appliances etc. However if you’re an individual who does not travel as often, other rewards are available whereby you can receive cash back for purchases made such as food or clothing. However in terms of benefits, you must evaluate your expenses and determine where they are most often directed to establish which type of rewards and benefits best suit you.

APR% is the annual percentage rate that describes the overall percentage rate for the year on a credit card. There are two types to be considered including the ‘nominal APR’, which is the simple-interest rate for a year, and the ‘effective APR’ which is the fee and compound interest rate determined over the year. Both these rates are essential to be considered, as you as a customer, would want to pay the minimal amount in return for a banks services. The APR% is available to make it easier for borrowers to compare the rates offered by lenders and for loan options. Although the APR% may vary throughout the year, overall the intended assistance is there as it helps customers determine which lender provides optimal service for minimal payment.

Ultimately deciding which bank to go with when using a credit card is always going to be a daunting process which requires meticulous research however when you consider these three elements, your choice can be made a lot simpler.