This is also called the Quoted Rate. So, when a bank says that they will charge X% on a loan or on your credit card, they are talking about APR.
2. Effective Annual Rate (EAR)
This is the actual interest rate you pay on an annual basis in any kind of loan. EAR depends on the compounding interval which can be daily, monthly or quarterly.
So, if the creditor uses a monthly compounding the EAR would be
= (( 1+ (APR / 12)) ^ (12)) - 1
So, if the quoted rate is 33%, the EAR based on monthly-compounding is
= (( 1+ (33% / 12)) ^ (12)) - 1
In the case of daily compounding, the EAR would be
= (( 1+ (APR / 365)) ^ (365)) - 1
So, if the quoted rate is 33%, the EAR based on monthly compounding is
= (( 1+ (33% / 365)) ^ (365)) – 1
3. Monthly Rate
Monthly rate = APR / 12
So, for a 33% APR,
Monthly rate = 33% / 12 = 2.75%
1. Minimum Amount Due (MAD)
This is the minimum amount you need to pay to avoid paying any late fee. Paying this amount does not save you from the interest payment.
2. Total Amount Due
This is the actual amount due to the credit card company.
OTHER BASIC TERMS
1. Statement Date or Billing Date
In the date when the credit card statement is prepared and sent to the credit card holder.
2. Payment due date
It is the date by which the credit card dues to be paid. It is mentioned in the statement and depends on the interest-free period.
3. Interest-Free Period
The interest-free period is the maximum days for which interest is not payable on transactions. Consider your billing date is the 10th of a Month and the interest-free-period is 50 days. The dues for the transactions from 11th April to 10th May will be payable by the 30th of May.
For cash-advances and new transactions when there is an outstanding due, the Interest-Free Period is not applicable.
4. Card Limit
This is the maximum balance a credit card company allows on a credit card. The credit card company generally charges a penalty for going above this limit.
These are some basic terms. For all the terms read the MITC (Most Important Terms and Conditions) document for your credit card thoroughly.
To be continued...
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