Average Credit Card APR | Credit Cards
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Key Takeaways
- Credit card annual percentage rates are what your issuer charges when you carry a balance month to month.
- APRs vary depending on factors including the kind of transaction, and most APRs change along with the prime rate.
- If you pay off your balance in full every month, you don’t have to deal with your card’s APR.
Credit card annual percentage rates, commonly known as APRs, determine how much you’ll pay in interest if you carry a balance on your credit card. Your card’s APR can vary depending on a few different factors, and there can be different types of APRs for each card. If you know you’re going to carry a balance, consider a card’s APR when shopping for a new credit card or negotiating rates on a current credit card.
Why Your Credit Card’s APR Matters
If you carry a balance on your credit card, interest charges can add up quickly. As interest charges accrue, they can make a balance grow larger and more difficult to pay down. The average APR on all credit cards is 20.94%, according to the Federal Reserve. But if you carry a balance, your APR is most likely closer to 22%. So let’s do a little math and see how interest rates compare.
Let’s say you have a balance of $5,000 on a credit card with a 22% APR, and you want to pay off that balance in one year. Your monthly payments would roughly be $468, and you would pay $615 in total interest.
But if that same $5,000 balance was on a card with a 16% APR, your monthly payments would be about $453, and you would pay $443 in total interest. That’s about a $172 difference.
It’s important to remember that the larger the balance, the more interest you’ll be charged. For example, a $10,000 balance on a card with an APR of 16% paid off over two years will cost about $1,750 in interest. The same balance at a 22% APR will cost about $2,451 in interest – a difference of about $700.
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Types of Credit Card APRs
Credit card APRs can be fixed or variable, though most credit cards have a variable-rate APR. There are also different APR rates that apply depending on how you use credit.
- Variable APR. This is what most credit cards offer. These rates can change over time and are usually based on a benchmark rate. For example, a credit card might set its APR to the prime rate plus 3.5%. When the prime rate increases or decreases, so will your credit card’s APR.
- Fixed APR. Though rare, some credit cards come with a fixed rate. Another way you may have a fixed rate is if you make a late payment and trigger a penalty APR.
- Penalty APR. This applies when your payment is more than 60 days late or you’ve had a returned payment. Penalty APRs are typically higher than your purchase APR. However, your issuer is required to review your account at least every six months to determine if your APR can be lowered after a good payment history.
- Purchase APR. This is the standard APR that applies when you make purchases.
- Introductory APR. Some credit cards offer a 0% intro APR period on purchases, balance transfers or both. Usually, introductory APR periods range from 12 to 21 months.
- Balance transfer APR. While you may be able to get a balance transfer APR at 0% for an introductory period, not all cards offer this. Some cards have an additional APR set for all balances transferred to the account.
- Cash advance APR. This applies when you cash a credit card check or use your credit card to withdraw cash from an ATM. Cash advance APRs apply immediately without a grace period, are typically higher than purchase APRs and a cash advance fee may apply to each cash transaction.
How to Lower Your Credit Card’s APR
Credit card issuers compete on many factors, and your APR is one of them. You can use this to your advantage whether you’re shopping for a new card or maintaining an older credit card account.
If you need to carry a balance, it’s a good idea to do whatever you can to lower your card’s APR. Here are a few tips on how you can do just that:
- Call and negotiate a lower rate. If you’re an existing cardholder, talk to your issuer and ask for a lower rate. The issuer may say no, but if it agrees, you could save significantly on interest charges each month. You may have a stronger case for negotiation if you can point to a lengthy and positive payment history.
- Apply for a balance transfer card. Many cards offer a 0% introductory APR, which can allow you to avoid interest charges on purchases or balance transfers during the introductory period. If you have a balance to pay down or plan to make a large purchase that you need to pay off over time, a 0% introductory APR can be useful. Just be mindful of the balance transfer fee.
- Pay your balance on time. The best APR is one you never have to pay at all. Your credit card’s APR doesn’t matter if you pay your balance on time and in full each month. Manage your spending so you’re not charging more than you can afford to pay during each billing cycle, and set up automatic payments and reminders so you’re less likely to forget about making a full payment on time.
