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Understanding the Different Types of APRs

Understanding the Different Types of APRs

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This article was last updated Dec 12, 2018. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

It’s no surprise credit cards have numerous fees, but did you know there are also multiple interest rates?

The annual percentage rate (APR) is the interest rate charged by banks on credit cards. When you use a credit card, actions you take are subject to up to five different APRs. You may incur one, all, or none of these APRs, depending on the whether you pay the entire balance during the grace period, make a new purchase, transfer a balance, miss a payment or use your card for a cash advance.

While all these APRs may sound confusing, once you understand which APR applies to the various actions you take, it is relatively simple.

For example, let’s say you apply for a new card offering an introductory 0% APR for a specified period of time. If you rack up a lot of charges on the card, but don’t pay it off in full before the intro period ends, interest charges will begin to accrue on your balance, making it all the more difficult to pay off. Currently, the average APR for new cards is 16.91%, according to a recent CompareCards survey — and if you weren’t paying attention to the terms of your new credit card, this may come as an unwelcome surprise. That’s why it’s important to understand all the types of APRs your card issuer can charge you.

Here we’ll review the different types of APRs, where you can find your credit card’s APR, and how you can avoid paying any interest altogether.

The different types of APRs

There are five different types of APRs you may incur when using a credit card: purchase APR, balance transfer APR, introductory APR, cash advance APR, and penalty APR. Depending on the actions you take with your credit card, these interest rates may inflate your balance a lot or a little, depending on exactly how you used your card and how quickly you pay off your balance. When you understand when the following APRs can come into effect, you can potentially avoid all interest charges.

Here are the different types of APRs a card issuer may charge you:

  • Purchase APR: The most common APR associated with a credit card is the purchase APR. This is the interest rate that you’ll be charged for new purchases made with your card that are not repaid in full before the end of the card’s grace period — the amount of time between the end of a billing cycle and when your bill is due.
  • Balance transfer APR: A balance transfer APR applies to any balances that are transferred from one card to another. Unlike the purchase APR, the balance transfer APR is charged from the date you make a transfer and there is no grace period unless associated with an introductory APR (explained below). It’s common for banks to charge the same APR for both balance transfers and purchases, though you should always check since it may differ on some cards.
  • Introductory APR: Many credit cards offer intro periods where you can benefit from a low or 0% APR for a given time period. With these cards, you can carry a balance without incurring interest charges for a certain amount of months, as long as you make the required minimum payment each month. For example, you may have an intro 0% for 12 months on new purchases or an intro 0% for 15 months on balance transfers. If you take advantage of these offers, you won’t be charged interest during the 12 or 15 month terms. However, any balance left on the card after the intro period will begin to incur interest at the standard purchase and balance transfer APR. Note, if you don’t pay off your balance in full before the intro period ends, some cards (typically store cards) will charge you all the interest accrued since purchase or balance transfer date — otherwise known as deferred interest.
  • Cash advance APR: A cash advance is when you withdraw cash from your credit card’s line of credit. The cash advance APR is often significantly higher than your purchase or balance transfer APR. There is also typically a cash advance fee and no grace period. We don’t recommend taking out a cash advance for these reasons, unless it is an emergency and you can repay the advance quickly.
  • Penalty APR: When you miss a payment or pay late, many cards will jack up your APR to a new, higher rate. In addition to an increased APR, you risk termination of any intro 0% APR offers and damage to your credit score. Plus, the penalty APR has the potential to apply to your account indefinitely if you are repeatedly late with payments. However, the CARD Act of 2009 requires credit card companies to restore your regular purchase APR if you make consecutive on-time payments during the six months after the date the penalty APR is imposed — all the more reason why you should always pay at least the minimum due on time. Autopay is a helpful feature that can help keep you on top of timely payments.

Variable APR vs. fixed APR

Credit card APRs tend to be variable, which means they vary with the prime rate. However, there are some cards out there that offer a fixed APR, which will not fluctuate. When the prime rate increases, so will your variable rate credit card APR. However, if you have a card with a fixed interest rate — which is less common and often found from smaller banks and credit unions — your interest rate shouldn’t change.

Find out more on how credit card interest works.

Where to find your credit card’s APR

The easiest way to find your APR is by logging into your bank’s mobile app or online site. It’s either listed with your account or on your most recent statement. If you can’t find it, you can always call the number on the back of your card as well to ask.

You can also consult the terms and conditions of your credit card agreement, which was mailed with your card. The APR will usually be found on the first page, in a table titled “interest rates and interest charges.” You’ll see the APR next to a description of what kind of transaction is subject to that particular APR.

If you are online and thinking of applying for a credit card, you may have to look pretty hard to find a section, tab or website link labeled “terms and conditions,” “rates and disclosures” or “pricing and information.” Once you find the link, navigate until you find the interest rates and interest charges table.

It’ll look something like this:

INTEREST RATES AND INTEREST CHARGES

Annual percentage rate (APR) 14.49% to 25.49%, based on your creditworthiness.

These APRs will vary with the market based on the Prime Rate.

APR for balance transfers 14.49% to 25.49%, based on your creditworthiness.

These APRs will vary with the market based on the Prime Rate.

APR for cash advances 26.24%

This APR will vary with the market based on the Prime Rate.

Penalty APR and when it applies Up to 29.99%, based on your creditworthiness.

This APR will vary with the market based on the Prime Rate.

How to avoid paying interest on purchases Your due date is at least 23 days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month.

You may notice that many cards offer an APR range from low to high. The conventional thinking is that the better your credit score, the lower the APR you’ll qualify for, but that isn’t always the case. Unfortunately, you won’t really know what your new card’s APR will be until you are approved. If your credit score isn’t the greatest, know that you’ll most likely be offered an APR closer to the higher end of range.

How to avoid interest charges

Regardless of what the APRs associated with your credit card may be, it’s possible for you to use the card without ever having to pay any interest charges. The key is to always pay off your balance in full and on time. You’ll typically receive a grace period where your balance won’t be charged interest for at least 21 days. By paying your bill within the grace period, you can avoid paying interest charges altogether.


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