Credit Card Interest Rates

The annual percentage rate (APR) is the yearly interest rate you will be charged if you carry a balance, take out a cash advance, or transfer a balance from another credit card. The APR is an important part to consider when applying for a credit card, since you could end up saving a lot of money with a competitive interest rate.

The credit card issuers base their APR on either a variable rate or a fixed rate and knowing the difference could result in a lower interest rate.

The variable rate is tied to another rate and usually it is the prime rate that is used as an index. The prime rate is the rate at which the banks can borrow money from the Federal Reserve. The card issuer adds a number of percentage points, known as the margin, to the prime rate and the combined number is the credit card interest rate.

The fixed rate means you are offered one set rate that usually does not change. However it is not impossible for a fixed rate to change as the credit card issuer may have included the right to change rate in the terms and conditions, but the lender is required to provide a 15 days notice before raising the rate.

There is more than one interest rate on your account and it varies depending on the use of the credit card. Here is a list of the rates that needs to be considered.

APR for purchases

This is the most common APR and will be the rate for all your purchases

Balance transfer APR

Usually the same rate as the APR for purchases and used when transferring a balance from a high interest credit card.

Cash Advance APR

This rate is significantly higher than the purchase and balance transfer APR. Using a credit card to get cash at an ATM should be avoided for this reason.

Introductory APR

A fixed low rate that is available for a period of time when you get a new credit card.

Default APR

Your APR may increase to a very high rate if you fail to make at least the minimum payment due by the date and time due. This rate can also be applied if you exceed your credit line or if your payment is not honored by the bank.