The annual percentage rate, or APR, is the interest rate charged on credit card debt. Some credit cards have the same annual percentage rate (APR) for all consumers.
Others have APR ranges – for example, 13.99% to 23.99% – and your creditworthiness determines where you fall within that range. That’s why you won’t always get the lowest APR promised.
However, the higher your credit, the better APR you can get.
While there are many different types of credit card APR, the buy APR — the interest rate you pay on your purchases — is the one people are most interested in.
While it’s simple to suggest that you should always look for credit cards with APRs that are at or below the national average, the best APR to buy for you is determined by your credit score.
This means that a good credit card interest rate for someone with a credit balance is not the same as a good credit card interest rate for someone with exceptional credit.
Good APR credit card
The best you can get APR on a credit card is 0%, but that’s only for a limited time. Many credit cards offer new users a special 0% APR for 12 months or more.
A good APR for a credit card is one percent lower than the current average interest rate, but it will only offer the lowest rates to applicants with great credit. Let’s look at credit card APRs and how to get one with a low rate.
Of course, APR doesn’t make sense if you don’t carry over a balance from month to month, because you’ll never pay interest. However, if you are in debt on your credit card, as nearly half of all Americans do, the APR affects the amount of interest you pay.
Your credit will go from “subprime” to “prime” each time your FICO Score reaches 670. This means you can take advantage of preferential interest rates.
What does buy APR mean
When you carry a balance on your credit card, the annual percentage rate (APR) charged on purchases is known as the percentage rate (APR).
If the quoted APR of a credit card is 19%, for example, an interest rate of 1.58% on the outstanding balance will apply to the total amount owed.
You can avoid paying interest on purchases you’ve made if you pay the balance in full by the grace period, which is the period between the end of a billing cycle and the date your payment is of.
They can associate multiple APRs with a single credit card. Cash advances may have a different and higher APR than purchases. (Also, interest on cash advances accrues immediately).
Purchases can earn interest only at the end of the payment cycle.
How the APR credit card is determined
The term APR stands for annual percentage rate and refers to the interest rate charged by lenders when you borrow money. It represents the annual cost of funds, but we can also apply it to loans made for much shorter terms.
Each credit card has its own APR and annual fee structure, which can be found in the card’s Schumer box. We usually find this box on the landing page of a credit card website or during the online application process.
According to the Federal Reserve, the average APR charged for credit card accounts that earned interest was 16.44% in November 2021.
Each credit card issued sets its credit card APR. And issuers typically determine credit card APRs based on two main factors:
a. Prime rate
Most lenders set their interest rates based on the prime rate. The prime rate is an index closely related to the federal funds rate – the rate that banks charge each other to borrow money.
When lenders set their credit card APRs, they usually add some margin to the prime rate. So, if the prime rate is 3% and the bank’s margin is 12%, for example, the APR will be 15%.
b. The financial situation of the cardholder
The better your credit, the lower your interest rates could be.
As the Consumer Financial Protection Bureau (CFPB) explains, the credit card company can decide what interest rate to charge you based on your application and credit history.
Types of Credit Card APRs
Credit cards usually have more than one type of APR. The APR you are charged depends on how you use the card. And understanding when this different APRs apply can help you pay less interest.
Here are five types of APR you might find with a credit card:
Purchase APRWhen you charge purchases to your credit card and carry the balance forward to the next billing cycle, your credit card issuer applies a purchase APR to the unpaid portion of your balance.
APR balance transfer
The Balance Transfer APR applies to any debt you transfer to your credit card account.
They usually charge the APR balance transfer from the date you make a transfer. And keep in mind that balance transfers may also incur fees.
APR cash advance
Some credit card issuers allow you to withdraw money from your credit card’s line of credit, called a cash advance. A credit card’s cash advance APR may be higher than the card’s purchase or balance transfer APR.
In addition, interest accrues immediately on cash advances. They may also incur fees.
A late credit card payment could result in an APR penalty. Indeed, your issuer can increase your APR if you are more than 60 days behind on your credit card payments.
But the increase might not be permanent. You can get your original purchase APR back if you make payments on time in each of the six consecutive months after receiving the APR penalty.
Some credit cards offer an introductory APR – a lower than normal APR that you get for a set period of time when you open an account.
Introductory APR periods must be a minimum of six months and can apply to card purchase APR, the balance transfer APR, or both.
But keep in mind that an introductory APR is a limited-time offer.
When the introductory period is over, the standard APR will apply. And if you have a balance on the card at the end of the APR introductory period, you’ll see the card’s standard rate applied to the balance.