# Effective Annual Percentage Rate **URL:** \ **Category:** Factual Questions\ **Created:** [January 7, 2006, 10:39pm UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939 "2006-01-07T22:39:23Z")\ **Posts on this page:** 6\ **Page:** 1
**Author:** ![Walloon](https://avatars.discourse-cdn.com/v4/letter/w/fbc32d/32.png) [@Walloon](https://boards.straightdope.com/u/Walloon)\ **Post date:** [January 7, 2006, 10:39pm UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/1 "2006-01-07T22:39:23Z")
This is a credit card question. Is it possible for the “Effective Annual Percentage Rate (APR)” on my balance to be higher than any of the component APRs? My monthly statement says, > [@](#): > > The effective annual represents your total finance charges — including transaction fees such as cash advances and balance transfer fees — expressed as a percentage. My finance charges on the monthly statement break down as: X dollars at 9.99% APR Y dollars at 4.99% APR Z dollars at 5.99% APR Yet the Effective Annual Percentage Rate at the bottom is 10.02%, higher than any of the component APRs. How is this possible? I have no hidden or irregular finance charges on this statement — no cash advance fees, no balance trasnfer fees, no late fees, etc. I called the credit card company, and they said they think the APR is correct. ---
**Author:** ![Big\_Mony\_Mony](https://avatars.discourse-cdn.com/v4/letter/b/e47774/32.png) [@Big\_Mony\_Mony](https://boards.straightdope.com/u/Big_Mony_Mony)\ **Post date:** [January 7, 2006, 11:02pm UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/2 "2006-01-07T23:02:20Z")
I suspect that the three component APR’s don’t include service fees (cash advances, balance transfer fees, and the like) while the EAPR does. ---
**Author:** ![MrJackboots](https://avatars.discourse-cdn.com/v4/letter/m/c0e974/32.png) [@MrJackboots](https://boards.straightdope.com/u/MrJackboots)\ **Post date:** [January 7, 2006, 11:02pm UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/3 "2006-01-07T23:02:23Z")
Compounding, I think. I’m too lazy at the moment to get my finance textbook out, but as I remember, the APR is simply the compounding rate per period multiplied by the number of compounding periods in a year. For example, 9.99% APR, compounded monthly, means that there is 9.99%/12 interest charge per month. Compound this across a year (remember, you pay interest on interest), starting with a hundred dollars, and you have $110.46 in debt, not $109.99 (subtle difference, but it adds up), for an effective APR of 10.46%. My guess is you have a lot of X and not very much Y or Z, such that, after weighting, the average comes out to 10.02%. ---
**Author:** ![Big\_Mony\_Mony](https://avatars.discourse-cdn.com/v4/letter/b/e47774/32.png) [@Big\_Mony\_Mony](https://boards.straightdope.com/u/Big_Mony_Mony)\ **Post date:** [January 7, 2006, 11:04pm UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/4 "2006-01-07T23:04:15Z")
I just noticed you addressed my theory in you OP, sorry. Go with MrJackboots instead. ---
**Author:** ![Walloon](https://avatars.discourse-cdn.com/v4/letter/w/fbc32d/32.png) [@Walloon](https://boards.straightdope.com/u/Walloon)\ **Post date:** [January 8, 2006, 12:04am UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/5 "2006-01-08T00:04:34Z")
> [@MrJackboots](#): > > My guess is you have a lot of X and not very much Y or Z This is true. ---
**Author:** ![nerd](https://avatars.discourse-cdn.com/v4/letter/n/f475e1/32.png) [@nerd](https://boards.straightdope.com/u/nerd)\ **Post date:** [January 8, 2006, 12:44am UTC](https://boards.straightdope.com/t/effective-annual-percentage-rate/338939/6 "2006-01-08T00:44:34Z")
What MrJackboots said. Just as a deposit account will quote an Annual Percentage Rate (APR) and an Annual Percentage Yield (APY), you credit account is quoting an APR and an EAPR.