What is credit card APR?

It can seem like there are hundreds of credit cards on the market and no definite way of choosing the one that will be most suitable for you, especially when the financial sector is in such disarray.

One of the ways consumers can compare which card could best suit their needs is looking at the annual percentage rate - known as the APR.

Companies that offer a credit card service must quote this figure when advertising their products, and it is important to take note of this rate before you make any purchases.

A number of factors are taken into account when calculating this rate - each having a significant effect on your pocket.

Fundamentally, it relates to the total cost of borrowing money, including the level of interest and when it will be expected to be paid. The way banks make money on your borrowing is by slapping on an extra charge for the amount of time it takes you to pay it off. Many banks now offer 0% APR for the first 3-6 months, meaning that you can easily pay the money back without incuring any huge charges.

Additional charges should also be included in the APR, for example any set monthly fees for owning the card.

However, there are some facts and figures that will not be included in the APR, such as charges that can be incurred by the way a card is used.

If you miss a repayment or underuse your card, your credit card provider may penalise you in this way. The charges for not paying back a fixed amount of money within a month period can often be £30 or more, depending on the limit of your card.

When taking out a credit card based on the APR, you should check with the lender whether the interest is charged at a variable or fixed rate. Always look for the 0% for 3-6 months if you're looking to make a one-off purchase and not use the card again, this will save you a lot of money in the long run.

It now seems that many people are using credit cards for daily shops and trips to the grocery store, while this isn't wholly advised, many experts say as long as you can quickly pay it off it doesn't matter when you use it.