Is a 24.99% APR high for a first credit card?

In modern times, it is undeniable that credit cards have emerged as the most widely used payment method amongst the cashless payment options. The primary and most important feature of credit cards is that they provide the customers with the lucrative opportunity of using the banks’ funds for their own expenses, and then allows them to pay it back after a certain time period. 

However, if all of it is really this good, then why do people fret when it comes to applying for their first credit card? A major factor behind this initial indecisiveness is the different charges and interests that come with the card. 

One of these is the APR or the Annual Percentage Rate that needs to be paid when one does not pay back the bank within the billing period. When the bank allows you to spend a certain amount of money, they also expect you to pay it back within a certain period. On failing to do so, you are charged with an Annual Percentage Rate. 

This might lead to questions like “how does the APR work?”, “what are the usually charged rates?”, and “is 24.99% APR good for a credit card?”. Here is a brief guide to help you answer all these questions.

How does Annual Percentage Rate work?

When we say the customers are allowed to use the bank’s money for personal expenses, it does not imply that they can borrow as much as they want. Each customer is allotted a certain credit limit based on their assets, credit score etc. 

This is a cash limit in credit cards that fixes the maximum amount of money that can be paid through the card. Now, each card has a fixed billing period, and the money spent through the card is to be returned to the bank by the customer at the end of each billing cycle.

 If the customer fails to pay back the owed money within the due date, then the overdue sum is carried forward, and the interest charged on it annually is the APR or the Annual Percentage Rate. It can be also looked at as a form of a penalty fee that’s charged because your initial billing period was extended.

Standard APR Ranges

As the APR pertains to the amount that would eventually be paid by defaulting customers, it is always advisable to check it before applying for a credit card. So, if someone is charged 24.99% interest (something that’s common in many banks), one is bound to question — is 24.99% APR good for a credit card? The answer to this all-important question lies in the word “Annual”.

 It is to be noted that 24.99% is the annual rate that gets divided over 12 months, so the monthly rate comes down to a little over 2%. To put it simply, if your card charges an APR of 24.99%, then you pay an interest of a little over 2% for every month when you fail to pay your bill.

 However, an interest rate of 24.99% is considered a little high for first-time credit cardholders, as the average interest rate is considered to be approximately 19%.

There are pros and cons attached to both high and low APR cards.

 The primary difference between them is that one needs a substantially better credit score (around 700) to qualify for a low APR card. However, the cards charging higher interest rates do come with better rewards and complimentary privileges.