How Much Is The Cost Of Borrowing On Your Card?

Have you ever realised that having a credit card costs you money?

Each time you charge anything on your card, it reflects as an additional amount on your account balance. This amount, if not paid by the time your statement is due, incurs interest that compounds every due date as long as there is an outstanding balance left on your account. Knowing this, a lot of people just figure that as long as they pay off their purchases by the time the statement is due will allow them to escape the cost of borrowing using their credit cards. While this is true in the sense that you end up not having to pay interest on those purchases, what you might not realise is that there could be other charges on your credit card account that will automatically charged periodically whether or not you use your credit card. This means that if you estimate of how much your credit card costs you based on interest rates alone, you are surely underestimating the actual cost.

What you really should be looking at to know the real cost of borrowing using your credit card is the “annual percentage rate” or APR. credit cards uk companies advertise use the APR reflects the real cost of borrowing money on your credit card. Computation of the APR includes not just the interest rates, but also other regular fees such as annual fees and government taxes. It also includes transaction fees for every transaction like balance transfers and money transfers. This is why a different APR is quoted for every transaction.This means that when doing a credit card comparison, what you really should be looking at is the APR for each kind of credit card transaction you can make using your card. Obviously, in order to lower the cost of borrowing, you should go for a low apr credit card. If you do not know the APR on your existing credit cards, you can always go online and use an APR calculator so that you will be able to compare your credit card with the new cards you are checking out, to see if you will really benefit from a new card or not.

Aside from finding out the APR, another thing that you are probably already aware of that adds to the cost of borrowing on a credit card are the penalties. If you are among the majority of cardholders who do not pay off the entire balance on the credit cards every due date, and even miss a payment every now and then, then you know that the cost of borrowing on your card gets much higher due to late fees. Other charges that will add to the cost of borrowing include over the limit charges, early termination fees, and more.

So the next time, think about all these charges before you swipe your card or apply for yet another one.

By: Alex Foreman

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Alex Foreman is a freelance article writer who writes for Financial Facts about the current financial news and the credit crunch.