Having all interest charges figured on the same annual basis makes interest costs easy to compare. The periodic rate, the APR divided by the number of billing periods per year, is also disclosed. The lower the APR, the better. The APR is important to you if you expect to pay back less than the total balance due each month. If you are a convenience user who pays the bill in full each month, the APR is not as important.
Some credit cards charge an annual or membership fee.
To understand how finance charges are computed, it is necessary to review several terms. Refer to the sample Billing Statement in Figure 1 for specific illustrations. First, most credit companies base their finance charges on their monthly billing cycle. The billing or closing is the last day of the month that any purchase or payments have been recorded in the account. Most credit cards use a calendar month.