How do you figure out the APR on credit cards that have multiple interest rates?

I have a credit card that has various rates for different transactions. For example, Purchases are 29.99%, Promotions could be 9.99% or 4.99% and there are different balances on all of them.

The credit card company comes back with an Effective Annual Percentage Rate of 19.55%.

How do you figure out this number? Is it like a weighted average?

I know if you have $5000 at 20% and $1000 at 10% on the same card, the combined interest rate will not be 15% because you have the majority of the money at 20%, so it will be higher than 15%.

Any ideas?

By | 2013-08-27T15:19:20+00:00 August 27th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. Spotter 888 August 27, 2013 at 3:52 PM - Reply

    NOrmally, your credit card will have the following interests. One for purchases. One for cash advance. One for balance transfers.

    Purchases can have a promotional rate like 0% for the first 6 months of the card then it goes to Prime + xx%. Cash advances are normally 22% Balance transfers can be as low as 3% for the life of the balance depending on your credit history (both usage and payment) with your card company. You are correct, do not average them as it will only confuse you further. Treat them individually. The reason for the different rates is to “lure” you into spending much on the lowest interest segment, usually, balance transfers. While it is in your cardmember agreement in very fine print, all your payments will first be applied to the LOWEST INTEREST charges. When that is completely paid off then and only then will it apply to the second lowest and so on. Imagine you made a cash advance of $500 at 22% but have purchases of $700 at 17% and a balance transfer of $5000 at 3%. Until you are able to pay off completely the $5000, the $700 will continue to earn interest upon interest plus the $500 cash advance will rake in 22% month after month.

    My advice to all is when you have a credit card with a low balance transfer rate, by all means use it for balance transfers only. Use another card to purchase goods. Or pay the balance off before doing a balance transfer.

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