Credit & debt · Module 1 of 8
What a balance actually costs
How credit cards charge interest, when carrying a balance is free, and when it starts costing you every day.
Key terms in What a balance actually costs
- Annual percentage rate (APR)
The annual percentage rate, or APR, is the yearly cost of borrowing expressed as a percentage. Unlike the plain interest rate, it also folds in certain lender fees, such as origination charges, which makes it a standard tool for comparing the cost of different loans. Credit cards often quote a separate APR for purchases, cash advances and balance transfers.
- Grace period
A grace period is the stretch between the end of a billing cycle and the date a payment is due. On many credit cards, a balance paid in full within that window is not charged interest on new purchases. The terms of the cardholder agreement determine whether a grace period applies and what happens to it when a balance is carried over.
Source: Consumer Financial Protection Bureau, Credit cards key terms
- Revolving credit
Revolving credit is an arrangement that lets a consumer borrow up to a set limit, repay, and borrow again. The Federal Reserve notes that credit cards make up most of it, along with overdraft lines and similar plans, and that it may be unsecured or secured by collateral. The balance and the required payment change as the account is used.
Source: Federal Reserve Board, Federal Reserve Board - Consumer Credit - G.19 - about
- Credit limit
A credit limit is the cap a card issuer sets on how much can be charged to the card it issued. The issuer chooses it based on factors such as the applicant’s credit history and income, and may change it later. The ratio of a balance to the limit is one of the inputs that credit scoring models consider.
Source: Consumer Financial Protection Bureau, Financial terms glossary
Every term on Lever is in the money glossary.
About this module
What a balance actually costs is part of Credit & debt, one of 15 subjects in Lever. It’s a short run of 9 lessons, about 23 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
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Changing the deal you already signed
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What the loan actually bought
When a car or a degree loses value faster than the loan shrinks, and how to avoid owing more than something is worth.
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8
Paying in pieces
Buy now, pay later and interest-free instalments: when they’re really free, and when they get expensive fast.
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It’s part of Credit & debt. Lever will bring it to you when you’re ready, or you can go straight there.