By LaToya IrbyWhat Is APR on a Credit Card?
Quick Answer
The APR on a credit card is the annual rate of interest charged on the credit card balance. Credit cards often have several APRs for different kinds of credit card balances, like new purchases and balance transfers.
A credit card APR is the cost you pay when you carry a balance on your credit card. The APR, or annual percentage rate, is an important factor to pay attention to when you're choosing a credit card. Here's an overview of how credit card APR works and why it matters.
What Is Credit Card APR?
A credit card's APR is expressed as a percentage you can use to calculate the cost of borrowing money on a credit card and repaying it over time. As of May 2024, the average credit card APR was 22.76%, according to the Federal Reserve
A credit card APR can be either fixed or variable, though most credit cards have a variable APR.
- A variable APR can fluctuate over time, usually based on an underlying index rate like the Federal Reserve's prime rate. Your credit card agreement describes which index rate is used to determine your card's APR. When the index rate changes, your credit card APR will also change. Your credit card issuer doesn't need to give you advance APR increases resulting from changes in the index rate.
- A fixed APR generally remains constant. If the card issuer wants to increase a fixed APR, they must provide advance notice before the rate increase takes effect.
Interest charges apply to balances carried from one billing period to the next, meaning interest can be avoided if purchases are paid off quickly.
Credit Card APR vs. Credit Card Interest
With loans like a mortgage or auto loan, the APR may be higher than the interest rate. That's because APR includes the interest rate as well as upfront closing costs and other financing fees. With credit cards, however, the APR and interest rate are the same.
Learn more: APR vs. Interest Rate: What's the Difference?
Types of Credit Card APRs
Credit cards apply different APRs depending on the type of transaction; for instance, purchases and cash advances. As a result, your total balance may be subject to different APRs based on the specific transactions you've made.
| Purchase APR | The rate applied to purchases when you carry a balance from month to month. |
|---|---|
| Balance transfer APR | The rate applied to balances transferred from another credit card. The balance transfer APR is often the same as the purchase APR. |
| Cash advance APR | The rate applied to cash withdrawn against the credit limit or cash equivalent transactions. The cash advance APR is typically higher than the APR for purchases or balance transfers. |
| Installment plan APR | The rate applied to purchases you convert to a fixed installment plan, which some cards allow. |
| Penalty APR | The rate applied to your balance if you make a late payment or your payment is returned by your bank. |
| Promotional APR | A temporary low rate charged on specific types of balances, usually purchases or balance transfers, or both. |
Not every credit card carries all APRs. For instance, some credit cards don't have a penalty APR. Similarly, if a credit card doesn't allow cash advances, it won't have a cash advance APR.
You can find your credit card APRs on your monthly statement. And when you apply for a new credit card, navigate to the issuer's "Rates and Fees" link to find the APRs listed in what's known as a Schumer box, seen below.
Learn more: What Is a Schumer Box?
What Is a Good Credit Card APR?
Generally speaking, a good credit card APR is one that falls below the nationwide average. Since the average credit card APR changes with the market, what's considered a good APR also varies. A lower credit card APR is beneficial because you'll pay less interest when you carry a balance.
A good APR can also depend on the credit card issuer and type of credit card as well. For instance, rewards credit cards and retail credit cards tend to carry higher APRs. Conversely, credit cards from small- to medium-sized banks and credit unions are often lower, but rewards may not be as generous.
When you're shopping for a credit card, compare the APRs of similar credit cards from different financial institutions to find the best rate. A higher credit score could help you qualify for a lower credit card APR.
Learn more: Is There a Limit on Credit Card Interest Rates?
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About the author
LaToya Irby
LaToya Irby is a personal finance writer who works with consumer media outlets to help people navigate their money and credit. She’s been published and quoted extensively in USA Today, U.S. News and World Report, myFICO, Investopedia, The Balance and more.
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