Credit card statements can be a snarl of complicated terms that leave you scratching your head, not sure what you’re being charged for, or even whether the fee is reasonable or way off base. DPR stands for "daily periodic rate," but this number may or may not appear directly on your bill. It's a calculation, the ultimate effect of which is to determine how much you'll owe your lender when it adds interest to your principal balance.
Annual Percentage Rate
Everything starts with your annual percentage rate. This should appear somewhere on your credit card bill, but it may be on the back where your lender details the terms of your contract. Your bank can charge you more than one APR, depending on the nature of your transactions and other factors. For example, lending institutions usually have one APR for purchases and another for cash advances. You might receive a promotional APR – typically lower than usual – when you first take out the card, or a penalty APR, generally higher, if you fall behind and miss a payment. Some banks offer variable APRs, and others apply fixed or non-variable APRs. As of 2013, a typical APR can range from about 12 percent to a little more than 15 percent.
Calculating Your DPR
If your credit card's APR is 14 percent, your DPR is probably 0.0383 percent. Your lender arrives at this number by dividing your APR by the number of days in the year: 365. Some lenders may use 360 days. This number actually determines how much interest you'll owe on your bill in a given month.
Effect on Your Balance
Calculating your interest involves multiplying your DPR by how much you owe your credit card lender at the end of each day. Your daily balance includes interest that accrued on previous days; your interest is "compounding" or adding up. For example, if you make a $1,000 purchase on Monday at an APR of 14 percent, you'll owe your lender $1,000.38 on Tuesday. On Tuesday, your lender will multiply $1,000.38 by your DPR, resulting in a balance of $1,000.76. The process continues until you make a payment, at which time your lender multiplies your DPR by your remaining balance after the payment is deducted. A similar method of calculating is to multiply your DPR by your balance, then by the number of days in the month. For example, your $1,000 purchase would result in an end-of-month balance of $1,011.49 in a 30-day period. Your bank's method of calculation should appear on the back of your bill, but both yield much the same result.
Priority of Payments
After calculating your DPR and adding the interest you owe, your lender determines your minimum monthly payment. This is typically a few percent of your total balance as of the billing date. For example, if you owe $1,011.76, your minimum payment might be 3 percent or a little more than $30.00. If your balance is the result of different APRs, such as one for a cash advance and one for a purchase, and if you only make your minimum monthly payment, your lender can apply it to the lower APR rather than the higher one. The charge you made at the higher APR will linger, resulting in an increased DPR and costing you more when your next monthly payment rolls around. If you pay more than your minimum payment, the bank must apply anything over the minimum to the portion of your bill that incurs a higher rate. For example, if you pay $40.00 instead of $30.00, $30.00 would go toward the low-rate portion of your bill and $10.00 would whittle away at the high-rate portion.
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