If you see a UAE credit card offer, the first number you will see on the page is likely the APR. Most cardholders will see this number and think it is the interest they’ll be paying. The truth is, it’s more complicated, and knowing what APR means can save you from unpleasant numbers on the bill.
APR is often a major factor when considering UAE credit cards and this guide explains what banks take into account when determining APR and how two credit cards with the same advertised APR can have very different costs on a balance.
What APR Means
APR is the Annual Percentage Rate. It should reflect the total annual expense for a person’s borrowing from the card, as a percentage. The UAE Central Bank regulates the APR on all credit card products, and all banks must state the APR of a credit card.
APR is not the same as the monthly interest rate—the important thing to know is that it isn’t. The monthly rate is the lower rate that you pay on your unpaid balance for each cycle, and it’s approximately the APR divided by 12. Interest does compound; however, the actual annual expense is generally a bit more than just the simple multiplication would indicate.
What is Included in the APR
When it comes to the UAE credit card APR, the typical fees consist of:
- The base interest rate on revolving balances
- Compounding effect, since interest is calculated on prior interest as well as principal
- Any standard fees the card issuer treats as financing costs.
What it isn’t always equipped with:
- Annual card fees
- Cash advance fees
- Foreign transaction fees
- Late payment charges
- Currency conversion markups
That’s why the APR is a good number to compare the cost of carrying a balance, but a poor measure of the total cost of using a card.
How Banks Calculate Monthly Interest
The most common technique that UAE banks use is the average daily balance. Let’s take a closer look at the process step by step.
Step 1: Daily Balance Tracking
Each day throughout the billing cycle, the bank records the amount of money you owe on your card. If you make a purchase, the balance goes up. When payment is made, it decreases.
Step 2: Average the Daily Balances
The bank calculates the sum of all the daily balances and divides that sum by the number of days at the end of the cycle. This results in the average daily balance.
Step 3: Apply the Monthly Periodic Rate
The monthly rate (APR divided by 12) is used on the average daily balance. That is the interest due for that cycle.
Worked Example
Let’s take a card with an APR (annual percentage rate) of 39%, which is a standard rate offered in the UAE.
| Item | Value |
|---|---|
| APR | 39% |
| Monthly rate | 3.25% |
| Average daily balance | AED 5,000 |
| Interest in the cycle | AED 162.50 |
Over a year, if the same balance were carried month after month, the total interest paid would exceed AED 2,000, which is why carrying a credit card balance is one of the most expensive forms of borrowing available in the UAE.
Why Two Cards With the Same APR Can Cost Differently
Different real costs from two cards with the same APR can be caused by:
- Grace period length. The average grace period for most cards in the U.S. for purchases is approximately 25 days. If paid in full monthly during this time frame, no interest will be charged. Cards with shorter grace periods are more expensive to run.
- Interest start date. Some cards charge interest from the day of the purchase if there is any balance remaining. Others start charging from the date of the statement. For active users, it can make quite a difference.
- Fees over and above the APR. Depending upon how you use these cards, a low APR card that has a high annual fee could end up costing you more than a card with a higher APR and no annual fee.
That is why it is impossible to compare UAE credit cards solely based on their APR. The payouts, grace periods and how the rewards are built are important.
How to Reduce What You Pay in Interest
One of the easiest methods to reduce credit card interest in the UAE is to pay off the entire statement balance every month. By making only the minimum payment, you keep the card in good standing, but pay almost all of the minimum due in interest and fees.
The more above the minimums that you can pay, the lower your average daily balance will be for the next cycle, the lower that average daily balance will be, the less interest you’ll be charged.
If the customer has a long-term debt on the card, they may be able to save a lot of interest by transferring their balance to a card that offers a 0% promotion for a limited time, but such a transfer usually involves a one-off fee of 1% to 3% in the UAE.
Where to See Published APRs
Banks must list the APR on each card page, but it’s tedious to check the APR of multiple cards in individual bank websites. Most UAE cards have detailed APRs, fees, and reward structures provided for them in one place, at aggregator sites like Masarif , which makes it easier to compare side by side. Before applying, it is always best to check the official terms and conditions as issued by the bank.
Summary
APR is an annual rate, but interest is accrued and charged on the average daily balance basis on a monthly basis. The advertised APR is just one piece of the balance carrying cost – grace periods, fees, and new purchases are all included. The card that pays off every cycle with zero balance, no matter the APR, will be the cheapest card to use.
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