Question

Credit card APRs are based on what

Answer 1

Credit card APRs are based on an individual's credit rating, past borrowing history, reliability in repaying debts, and broader market interest rates. With an average interest rate of 15%, Americans pay billions in interest on credit card debts annually, plus any associated fees. This leads to considerable economic impact given the extensive outstanding credit card debt.

Step-by-step explanation:

Credit card APRs (Annual Percentage Rates) are primarily determined by credit ratings and market interest rates. Financial institutions such as banks use these credit ratings, provided by agencies like Standard & Poor's and Moody's, to gauge the riskiness of lending to an individual. The credit rating is based upon factors such as previous borrowing history and how reliably a borrower repays their debts. This evaluation includes scrutinizing current debts, repayment habits, savings, and other investments. Furthermore, economic factors that influence the market cost of borrowing can also impact APRs, such as the Federal Reserve's interest rate decisions.

Americans, who have an average credit card borrowing interest rate of 15% per year, pay tens of billions of dollars annually in interest, in addition to any applicable basic fees or late payment charges. Given that in May 2021, Americans had a staggering $807 billion in outstanding credit card debts, the impact of these interest rates on the economy and on individuals' finances is significant.

Answer 2

A credit card's interest rate is the price you pay for borrowing money. For credit cards, the interest rates are typically stated as a yearly rate, called the annual percentage rate (APR). On most cards, you can avoid paying interest on purchases if you pay your balance in full each month.