Regardless of credit history or spending habits, almost every credit card holder today must confront a universal truth: Credit card interest is expensive.
Carrying a balance on any card with annual percentage rates (APRs) will cost a significant amount.
If that’s an important part of your search for a new credit card, you have some options, even in the current interest rate environment. Here’s what you need to know to secure a good credit card APR.
What is credit card APR?
APR is the annual amount of interest charged on your credit card balances.
APR doesn’t just apply to credit cards; You are also assigned an APR when you take out a mortgage, mortgage, or auto loan. However, credit cards are notorious for having among the highest APRs for borrowers. If you fall behind on credit card payments or can only afford your debt, your balance will skyrocket when higher interest rates kick in.
A few more things you need to know about credit card APRs:
Credit card interest increases daily. After your monthly maturity date, the remaining balance on your card will begin to increase interest on a daily basis. Each day, your available balance may increase by a percentage equal to your APR divided by 365; Therefore, your credit card debt may grow rapidly.
Credit card APRs are based on prime rate. Because the prime rate depends on: The target federal funds rate range tends to increase as the Fed raises interest rates. To determine the variable APR range, look for a note in your card contract that explains the percentage your card issuer adds to the premium.
Is your credit card’s APR good?
Because credit card APRs vary so much, it’s difficult to determine one rate as “good” over another. If you don’t know where current credit card interest rates stand, you might be surprised. In fact, even cards reserved for the most creditworthy applicants can charge incredibly high interest on loan balances.
Before you do, look for the variable APR range listed on the issuer’s site. This is the range your assigned APR will fall within and is usually around 10%. There are many factors that affect your current credit card’s APR, including card type, your credit history, and more. But getting an assigned APR at the lower end of the card’s overall range might be a rate you consider “good.”
Comparing interest rates on different credit cards can help you get a better idea of what you consider a “good” rate. If you see a card with an abnormally high APR compared to other cards on the market today, you may want to stay away. This rate will likely continue to increase over time, and the card may also carry additional fees and charges that can increase the overall cost.
Average credit card interest rates
You may also consider it good if your credit card APR is below the current average. But with today’s averages at the highest levels on record, this can make it difficult to gauge the barometer.
According to the latest news The current average interest rate on credit cards in the US is around 21.19%. But for cardholders with a balance, the average is even higher. When credit card accounts that only increase interest are included, the average rises by more than one point to 22.77%.
So no matter how you use your credit card, you’ll likely earn up to 20% interest in the current rate environment.
4 types of credit card APR
Credit card APRs can apply to different types of transactions you make with your card. Here’s a look at how they can differ between transaction types.
1. Buy APR
This is the most common credit card APR and applies to new purchases you make with your card. You can usually find your card’s purchase APR at the top of your card contract. Each month, you will have approximately 21-30 days between the end of the billing cycle and the due date to pay off your balance interest-free. After this date, your card’s purchase APR will begin to increase in interest on your new purchases.
This rate will fall within the variable APR range specified by the credit card issuer, but your credit history can play a big role in the actual rate you’re assigned. The better your credit is when you apply for a new credit card, the better your chances of qualifying for a lower purchase APR. If you have bad credit, you may not get the best rates.
2. Cash advance APR
You should avoid taking out cash advances with your credit card whenever possible. Essentially, this transaction is a type of short-term loan against your credit limit. It is also extremely costly.
The APR you’ll pay for a cash advance is likely much higher than your standard purchase APR. Unlike new purchases, cash advances have no grace period. Interest will start accruing on the day you make the cash advance.
3. Entry APR
Introductory APR credit card offers are relatively common. They typically include an introductory 0% APR on new purchases or both for a limited time. Promotion periods commonly used today range from 12 to 18 months and up to 21 months.
If you have existing debt or are planning to make a large purchase in the near future and want extra time to pay it off interest-free, finding a card that offers an introductory APR offer can be a smart financial decision. Make sure you understand all terms of the offer (including additional fees) before applying.
4. Penalty APR
Penalty APRs are among the most expensive fees you can incur as a cardholder. Issuers often impose penalty APRs if you make a late payment or your payment is refunded, leaving your balance unpaid. You can avoid this fee by paying at least the minimum amount of your balance by the due date.
If you get an APR penalty, that doesn’t mean it will last forever. In most cases, you can lower your APR again after a series of consecutive on-time payments.
How to get a lower credit card APR?
Despite today’s sky-high credit card rates, there are some actions you can take to increase your chances of getting a lower APR.
Improve your credit score
Your credit history plays a big role in the APR you receive. If you have consistently paid your bills on time in the past and can show this with a positive payment history on your credit report, you will likely qualify for the best rates.
If you don’t already have an excellent credit history, you may want to focus on improving your credit before applying. Remember, even the best credit will only get you allocated a variable rate at the lower end of any given card’s stated APR range; this is usually above 15% APR.
Consider card type
The type of card you apply for may also affect its APR. The upper end of one credit card’s variable APR range may be the lower end of another card’s range.
If you’re looking for a high-value, rewards credit card with premium benefits, you can count on a high APR. On the other hand, some cards designed for beginner cardholders or those looking to improve their credit may have slightly lower interest rates. But today’s high interest rate environment has skewed that comparison somewhat. In general, nearly every credit card now carries a steep APR going forward.
One way to avoid these rising interest rates in the near term is with a card that offers 0% interest on new purchases or balance transfers for a limited time. The 0% APR introductory offers on these cards can be helpful for an upcoming large purchase or existing debt. Make sure you have a plan to pay off your balance before the introductory period ends.
Talk to your card issuer
In fact, it is possible to get a better interest rate without opening a new credit card. In some cases, you can request a lower APR on an existing credit card by contacting your card issuer.
Contacting your credit card company isn’t a guaranteed solution, but it doesn’t hurt to ask. Before doing this, make sure you have established a history of on-time payments on your card. You may also be more likely to get a lower rate if you can show that your credit score has improved since you first applied.
One more thing: Avoid interest altogether
No matter how “good” a credit card’s APR is, increased interest on your balance will always cost you more money in the long run. Paying your balance in full and on time each month is the best way to ensure you pay as little interest as possible while avoiding it altogether.
Especially in today’s interest rate environment, even the lowest ongoing variable credit card APRs can lead to long-term, high-interest debt and add thousands of dollars to your balance over time.
If low APR is a priority in your search for a new card, consider your spending habits and what steps you can take to avoid charging interest. It may help to think of your credit card like a debit card; Focus on spending only as much as you know you can pay when your bill is due. Even if this isn’t always possible, at least try to come up with a plan to eliminate your debt as quickly as possible when you need to maintain balance.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. Details of financial products, including card rates and fees, are accurate at the time of publication. All products or services are offered without warranty. Check the bank’s website for the most up-to-date information. This site does not contain all offers currently available.