What Is APR?

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When it comes to shopping for a credit card, you’ll want to investigate several different features based on your needs. But one factor you must absolutely consider is the card’s annual percentage rate or APR. This figure — expressed as a percentage — varies greatly between issuers. An APR can determine whether your use of the card makes financial sense. If you make a big purchase with a card that has a higher APR, you could end up paying a significant amount of interest on the purchase.

What is APR?

An APR represents the potential interest in financing purchases with a credit card. APR rates are influenced by certain types of benchmarks and vary based on current economic conditions. As those benchmarks rise and fall, rates on credit cards follow suit. One such benchmark, for example, is the London InterBank Offered Rate (LIBOR). This is a rate that global banks use to borrow funds from each other without any form of security.

The word “security” is key to credit card programs. Credit cards are a means of borrowing money for purchases without pledging collateral for that debt. Because credit cards offer unsecured lines of credit, you’ll see a huge differentiation in the APR for an automobile loan or mortgage. A five-year car loan might have a 4% APR over the term of the loan, but a credit card APR might be 24.99% from the get-go. A credit card issuer is taking on greater risk because it can’t hold a car’s title or a house deed as security for the loan.

It’s important to pay close attention to a credit card’s APR rate. If you have a high APR rate and continuously carry a balance, it could take you much longer than planned to pay down debt and your cash flow could be negatively impacted while you struggle to meet other obligations.

Types of APR

Credit cards have different APR ranges depending on their key features and rewards. The most prevalent APR you should focus on is the regular rate for everyday purchases, regardless of promotional APRs. A card’s purchase APR is the one that will stick with you long term if you plan to hang onto the card for a while.

The purchase APR you’ll receive when you gain approval for a credit card is directly tied to your credit score. The higher your credit score, the lower your interest rate will be. Top-tier credit applicants may see a 14.99% APR, while cardholders with very good credit might be given an APR of 21.99% for the same card with the same benefits and features.

An introductory APR is a special rate meant to attract new cardholders who plan to make significant purchases during the first three months of opening an account. A 0% introductory offer incentivizes credit card shoppers to apply since there’s typically an absence of any APR rate for a specific period of time. Most major card issuers offer their customers a chance to finance purchases without interest charges for a period of 12 to 15 months.

Balance transfer APR offers cardholders a way to avoid high-interest charges accrued on other credit card accounts. For example, a customer with a $5,000 balance could transfer it to a new card with a 0% balance transfer APR for a certain amount of months, thereby avoiding hundreds of dollars in interest.

You’ll notice simple credit cards that don’t offer rewards or glitzy travel perks will typically charge a lower APR than premium cards. The cards that offer cash back rewards, points and miles usually come at a greater cost via higher annual fees and APRs.

How to get a good APR for your credit card

The key to acquiring a low APR hinges on creditworthiness. A card that offers a range of APRs will award applicants with higher credit scores an interest rate at the lower end of the spectrum, while cardholders with lower creditworthiness could end up with the maximum interest rate on a card. The Federal Reserve reports the average interest rate for U.S. credit cards has been approximately 14% to 15% APR since late 2019, but you can find cards that range from the mid-teens to the mid-20s in annual percentage rates.

New cardholders could be eligible for introductory and balance transfer rate offers, and those APRs typically start at 0% for six to 15 months. Here are three examples of credit cards that offer a 0% intro APR:

Card Intro Purchase APR Ongoing Purchase APR Annual Fee Intro Bonus Credit Needed Key features
Blue Cash Everyday® Card from American Express 0% for 15 months 13.99% - 23.99% Variable (See Rates & Fees) $0 (See Rates & Fees) $150 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months. Terms Apply. Excellent 3% Cash Back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%) and earn 2% Cash Back at U.S. gas stations and at select U.S. department stores, 1% back on other purchases. Terms Apply.
Capital One® Quicksilver® Cash Rewards Credit Card 0% intro on purchases For 15 Months 15.49% - 25.49% (Variable) $0 $150 cash bonus after you spend $500 on purchases within 3 months from account opening Good to excellent 1.5% cash-back rewards on every purchase made with the card

How to limit the interest you pay

The best way to avoid paying interest on a credit card is to steer clear of carrying a balance. By making purchases that fit into your monthly budget, you won’t have more bills than you can handle.

However, that plan doesn’t work for everyone. The next best strategy would be to get a card that has a low APR. Some banks, for example, issue cards with no rewards that have an APR of 10% or lower. If you plan to carry a balance for a while, you’ll have to weigh the absence of rewards on a low-interest card against a card with a higher interest that offers lucrative rewards.

The bottom line

For an individual or business that plans to carry a balance, APR is the most important factor to consider when picking a credit card. Individuals with higher credit scores will receive lower APR rates, which helps manage ongoing finances. If you’re interested in earning rewards and perks, paying off your balance on time and in full each month is the best use of your credit line. The secret to managing interest rates at any end of the spectrum is to know where you stand with credit and where you’re headed with cash flow.

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For rates and fees of Blue Cash Everyday® Card from American Express, please click here.

Please Note: Information about the Capital One® Quicksilver® Cash Rewards Credit Card have been collected independently by TheSimpleDollar.com. The issuer did not provide the details, nor is it responsible for their accuracy.

Editorial Note: Compensation does not influence our recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.

Thom Tracy
Thom Tracy
Contributing Writer

Thom Tracy is a personal finance writer from Scranton, Pennsylvania with 28 years of experience in the insurance, employee benefits and financial services industries. His work has appeared in QuickBooks and Investopedia. In his spare time, Thom likes to cook, hike and discover new music.

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

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