Using APR To Compare Credit Cards

More often than not you’ll be advised that comparing different Annual Percentage Rates (APR) is the quickest and easiest way to compare credit card offers. While not intending to be a reason for not using APR to compare credit cards, the following outlines some of the inherent problems of only using APR when comparing credit card offers:

Is it APR on the ‘fixed’ or ‘discount’ rate

Most of us are aware that APR represents the total interest charge for outstanding credit used. However, as its name suggests, APR is an annual rate. In itself this should not be a problem, but what happens if the credit card company is offering an introductory discount 0% interest on new accounts or transfer balances. Will this have an affect on the advertised APR, or will the APR be a mean?

So, before you agree to sign up for a credit card due to your diligent comparison of APR rates, ask the provider whether or not their APR has included the initial cheap discount rate. If not, expect the next year’s APR to be significantly different to the first!

Does APR include membership fees?

This may sound like a silly question, but more and more monetary authorities are now catching on to the fact that credit card providers are using artificially lower APR rates because they know you are using APR to compare credit cards. Consequently, although not yet a legal requirement in most jurisdictions, certain monetary authorities have ‘guidelines’ that suggest card issuers include any annual membership fees as part of their APR calculations.

What about late payment and Universal Default Penalty rates?

Another problem with making a comparison of credit card APRs is that they will not take into account any late payment fees or any Universal Default Penalty rates that may flow through. As such, although you may become a member of a credit card because you have made comparisons between it and its rivals, having used the card you may well find you are being charged the Universal Default Penalty rate that is significantly higher than the originally advertised APR.

All of these factors should give you cause to consider whether or not using APR to compare credit cards is the wisest move, or whether it is important to consider the whole package when comparing which credit card to use!