APR is the extra amount you need to pay if you borrow money to buy, say, a laptop, and don’t pay it back right away. The APR is how much interest you’ll pay over a year.
Here’s the scene: You spot the laptop you’ve been eyeing, but you can’t afford to buy it yet. Your friend spots you the cash but says, “If you don’t pay me back by next month, you’ll owe me a bit more.” That extra bit is like the APR on a credit card.
Credit card companies say, “Sure, buy what you want now, and you can pay us back later.” But if you don’t pay them back in full by the time your bill is due, they’re going to charge you interest on what you owe.
It’s kind of like a yearly membership fee for being able to borrow money, except the fee is a percentage of what you owe. Cards have different APRs for different things — one for the stuff you buy, one for the money you take out as cash, and sometimes special lower ones for transferring a balance from another card.
An important thing to know: If you pay off your whole bill every month, you don’t have to worry about APR because you won’t be charged any interest. It’s when you start carrying a balance from month to month that APR kicks in and starts to matter because that’s when you’re borrowing money and the meter starts running.
So, in a nutshell, APR is the cost of borrowing money on your credit card. Keeping an eye on it and understanding how it works can save you from spending more than you planned.
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