[Music] hey everyone so today we're diving into a topic that might sound a little complicated at first but I promise by the end you'll have a crystal clear understanding of it I'm talking about APR or the annual percentage rate if you've ever had a credit card or thought about getting one you've definitely come across this term and understanding it is very important let's start with the basics so what exactly is APR well think of it as the price you pay for borrowing money when you use a credit card you're essentially borrowing money from the credit card company and they don't do that for free they charge you an interest and that's where the APR comes in now let's say your credit card has an APR of 20% that doesn't mean you'll be charged 20% on everything you buy Instead This percentage is calculated annually so if you carry a balance of let's say $100 on your card for a year simply speaking you'd owe $20 in interest for that year but here's where things get a bit more nuanced instead of charging interest just once a month many credit card companies use a daily periodic rate so that 20% APR it's actually divided by 365 which comes out to a tiny daily rate but and here's the catch they apply this rate every single day so your interest is compounded daily which means your charged interest on the interest you've already accr for example if you owe $100 and with that daily rate you might owe $100 and5 the next day assuming the daily rate is 0.055% the day after you're not just charged interest on the initial $100 but also on that extra 5 cents it might not seem like much but over time and with larger balances this compounding effect can really add up now I can hear some of you asking but what if I pay off my full balance every month will I still be charged interest and the answer is no if you pay off your full statement balance by the due date you won't be charged any interest on your purchases that's why it's super important to pay off your balance in full whenever you can it saves you lots of money and helps build a good credit score now you might come across terms like introductory APR or balance transfer APR these are just variations on how APR can be applied an introductory APR is a lower rate that's offered for a limited period when you first get the card once that period ends the rate jumps to the regular APR balance transfer APR on the other hand applies when you transfer a balance from one card to another it might be different from your cards purchase APR so always keep an eye on that okay now some of you might be thinking why even bother with credit cards if they're going to charge me interest and that's a valid concern but remember when used responsibly credit cards can offer numerous benefits like cash back rewards and building a credit history which can be super beneficial when you're looking to rent an apartment get a loan or even buy a house so APR is an essential concept to grasp especially if you're starting to navigate the world of personal finance by understanding how it works you can make informed decisions about using your credit card wisely remember the goal isn't to fear credit cards but to use them to your advantage and always always try to pay off that full statement balance each month to avoid those interest [Music] charges