How does Annual Percentage Rate (APR) work?

Yep, that's pretty much it. They assess you finance charges monthly on your balance at the end of each month's billing period. If the APR is 10%, then you get charged 1/12 (1 month's worth) of 10% interest on that monthly balance. For example, it would be a $100 finance charge for the year as you said, so the monthly charge for the first month would be $8.33 (10% of 1000=100, --> 100/12=8.33). However, interest is compounded, so the next month's interest would be 1/12 of $108.33, and so on. The interest gets tacked on to your total so that the principle increases monthly that you're paying interest on. Since I've never heard of a card that doesn't require a monthly minimum payment, that principle balance would of course get lower every month. Usually if you pay the monthly minimum fee, you end up just paying off the interest accumulated that month, so you won't ever make a dent in the $1000 principle balance each month, you just keep paying off the interest on that balance monthly.

Of course, if you don't make your minimum payments, they will charge you a fee which is usually pretty exorbitant if you don't owe them very much, it's typically a flat rate no matter what your balance is. That would get added to the principle as well and would also be charged interest. So say if you missed a payment, and they charged you $35 for it, your balance that the interest is applied to for the next month would be $1035, and the interest on it would be the 1/12th of 10% as usual. Basically all fee's and interest get rolled into the principle, or are compounded, so that the balance that is eligible for interest increases accordingly each month.

RE:

How does Annual Percentage Rate (APR) work?

Here is my understanding of it: If you have a credit card with a balance of $1000, and your APR (Annual Percentage Rate) on that credit card is 10%, then all things being equal (meaning no payments or fees are applied to the card for one year) your balance on the card will increase by 10% (or $100...

How Does Apr Work

APR represents the cost of acquiring credit represented as an interest rate. Try this site; it's the best explanation I've ever found.

http://www.efunda.com/formulae/finance/apr_calcula...

The rate is calculated for every pay cycle. So for the first month, it will be 1000*10/100*1/12= 8.33 and Total pay is 1008.33. The rate will be calculated on cumulative amount going forward.

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