What Is A Credit Card APR? Understanding Rates, Costs, And Calculations In Singapore
September 28, 2023
There are several essential phrases to remember when dealing with credit cards. The most popular and crucial term you’ll probably come across is the annual percentage rate (APR), which establishes the price of lending on your credit card. So, what is a credit card APR?
The APR is the annual interest you will incur on the debt you owe on credit cards. Credit cards with variable annual percentage rates have interest rates that can change over time.
Look into whether or not the credit card’s interest rates are introductory rates or promotional. If so, be aware that it may increase once the promotional term finishes.
Let us look at the rates, costs, and calculations in Singapore.
What Is An Acceptable Annual Percentage Rate For Credit Cards?
The annual percentage rate (APR) is the price you pay for using credit cards to make purchases, i.e. the cost of borrowing. A good APR for credit card is the annual percentage rate at which your card will charge you to keep a balance.
One of your credit cards can have a 9.99% annual percentage rate, while another might have a 14.99% APR. When determining your annual percentage rate, credit card providers look at your credit score. A higher score means a cheaper APR.
The APR on credit cards is frequently variable, meaning it can change over time. APRs that fluctuate in response to changes in an underpinning index, like the SIBOR (Singapore Interbank Offered Rate), are variable APRs.
Your card’s annual percentage rate (APR) will rise in line with changes to the prime rate and fall in response to decreases.
How Singaporeans Calculate Credit Card Interest
Credit card companies typically calculate your interest due using a Daily Periodic Rate (DPR) rather than a simple monthly rate, as certain months have more days than others. Calculate this rate by subtracting the annual percentage rate from 365 or 360.
Multiplying your billing cycle’s total days by the corresponding DPR (a percentage) gives you your APR. Then, multiply that sum by your standard daily balance. The sum owed in interest for the month is the total.
Example Calculation Of Monthly Interest Charge, Considering Singapore’s Financial Regulations
Let us consider a scenario in which an individual maintains a standard daily balance of $5,000, subject to an interest rate of 15.99%. You calculate the daily periodic rate by dividing the annual percentage rate of 15.99% by 365 and get 0.0438%.
It is important to note that the billing cycle consists of 30 days. The monthly interest charge computation can be the product of the daily periodic rate of 0.0438, the 30 days of the billing period, and the standard daily amount of $5,000.
You can get the calculation of the monthly interest charge by multiplying the decimal representation of the interest rate (0.0438%) by the principal amount ($5,000) and the number of days (30). This results in an amount of $65.70.
Singaporeans’ Different Types Of Credit Card APR
Credit cards typically have multiple annual percentage rates (APRs), and cardholders should be conscious of this. The annual percentage rate that applies to purchases could be different than the APR that applies to:
- Cash advances
- Balance transfers
Credit card providers often impose a greater APR on advance payments than they do for purchases since interest accumulates immediately after they withdraw money.
Understanding APR and the distinction between regular and introductory APRs is also crucial. Most credit card companies provide promotional or introductory rates when customers register a fresh credit card.
For example, the first year may be interest-free for balance transfers and purchases. When the particular APR period ends, any balances on the credit card will be subject to the standard APR.
The final type of APR to consider is the penalty APR that will apply to your account if you fail to make two consecutive monthly payments. As per the card issuer, you might need to complete a specific amount of timely payments before they lower the penalty APR.
Tip: You can improve your chances of making timely payments by setting up automatic payments or alert reminders.
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Ways To Reduce Your Credit Card Interest Rate
Knowing the choices when you’re discontent with the credit card’s rate will help ease frustrations.
There are ways to reduce your interest rate that do not include getting a new card or cancelling your current one. Such include:
- Raise your credit rating
- Eliminate any outstanding credit card debt
- Think about making a balance transfer
- Get a new credit card by signing up for one
- Negotiate a lesser price
- You should pay your bills on time
It’s ideal to avoid ever having a balance from the previous month. In this manner, you can enjoy the benefits of credit cards (such as rewards) and avoid interest charges.
Choosing the most affordable APR is in your best interest if you anticipate carrying a balance from one billing cycle to the next.
Remember that a reward credit card often has the highest interest rate. Although the first offer may seem remarkable, it can quickly become expensive to carry a balance over.
Final Thoughts On Singaporeans Credit Cards
It is advisable to acquaint oneself with the terms and limitations of a credit card. Particularly its annual percentage rates (APRs), similar to any other financial arrangement. Note that the Annual Percentage Rate is only relevant when an unpaid amount is on the credit card.
One may avoid incurring interest costs by ensuring the balance due is fully paid before the monthly statement cycle’s conclusion.
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Questions And Insights
How Does The APR Impact The Overall Cost Of Using A Credit Card In Singapore, And What Local Factors Influence The APR Assigned To A Particular Card?
An APR might not accurately represent the price of borrowing as banks have some discretion in computing it and can exclude some costs from the calculation. APRs are higher than your regular rates.
The local factors that influence the APR are:
- Your credit rating
- The history of your payments
- The credit product type
- Is the interest rate variable or fixed?
- Environment of interest rate
What Is The Significance Of The Daily Periodic Rate (DPR) In Calculating Interest In Singapore, And How Can Consumers Utilise This Information?
You multiply DPR by the balance due after each day to calculate interest. Daily compounding implies that interest gets added to the account every day at the end of the day.
Knowing the recurring interest and compounding intervals allows debtors to determine the amount of interest accumulating on outstanding debt for a specified duration.
How Do Different Types Of Apr (Such As For Purchases, Balance Transfers, And Cash Advances) Affect The Way Credit Card Users In Singapore Should Approach Their Spending And Payment Habits?
The annual percentage rate calculates the cost of owing money on credit cards by factoring in fees, interest, and penalties. It tells you if the credit card offer is worthwhile. The cost of credit card debt increases as the annual percentage rate rises.
Learn if your credit card has an annual cost, a fee for purchasing in a foreign currency, and a price to transfer balances or get cash advances. Also, find out if they impose a fee for paying late and a fee for cancelling a payment.