What are APRs on Credit Cards?

2021-05-24

what

APR stands for Annual Percentage Rate. It is the interest rate you pay on your credit card balance each year. It's a fixed rate, meaning it won't change unless you have a variable APR. Variable APRs can change based on the prime rate, which is set by the Federal Reserve.

Your APR is one of the most important factors to consider when choosing a credit card. A lower APR means you'll pay less in interest over time. If you have a high APR, it can be difficult to pay off your debt. You may end up paying more in interest than you originally borrowed.

Now that you know what APR is, you can start comparing credit cards to find the one with the lowest rate. You can also take steps to reduce your APR, such as making extra payments and paying your balance in full each month.

APR on Credit Cards

APR stands for Annual Percentage Rate. It is the yearly interest rate you pay on your credit card balance.

Fixed vs. Variable
Impacts Interest Paid
Considered When Choosing Card
Lower APR Saves Money
High APR Makes Debt Costly
Extra Payments Reduce APR
Paying Balance Reduces APR
Compare Cards for Low Rates
APR Affects Credit Score

By understanding APR and taking steps to manage it, you can save money and improve your credit score.

Fixed vs. Variable

APR can be either fixed or variable. A fixed APR will stay the same for the life of the loan, while a variable APR can change over time.

Fixed APR:
With a fixed APR, the interest rate you pay on your credit card balance will not change. This can be beneficial if interest rates are rising, as you will be locked in at a lower rate. However, if interest rates fall, you may be stuck paying a higher rate than you would with a variable APR.
Variable APR:
With a variable APR, the interest rate you pay on your credit card balance can change over time. This is because variable APRs are typically tied to a benchmark interest rate, such as the prime rate. If the benchmark rate increases, your APR will also increase. If the benchmark rate decreases, your APR will also decrease.
Which is better?
The best type of APR for you depends on your individual circumstances. If you are looking for certainty and peace of mind, a fixed APR may be a good option. If you are willing to take on some risk in exchange for the potential to save money, a variable APR may be a good option.
How to find out your APR:
Your APR is typically disclosed in your credit card agreement. You can also find it on your monthly credit card statement.

It is important to understand the difference between fixed and variable APRs before you choose a credit card. This will help you make an informed decision about which type of APR is right for you.

Impacts Interest Paid

Your APR has a significant impact on the amount of interest you pay on your credit card balance. The higher your APR, the more interest you will pay. Conversely, the lower your APR, the less interest you will pay.

APR and Minimum Payments:
When you only make the minimum monthly payment on your credit card, it can take years to pay off your debt and you will end up paying a lot of interest. For example, if you have a credit card balance of $1,000 and an APR of 15%, it would take you over 10 years to pay off your debt if you only made the minimum monthly payment. You would also end up paying over $1,500 in interest.
APR and Balance Transfers:
If you have a credit card with a high APR, you may want to consider transferring your balance to a credit card with a lower APR. This can help you save money on interest. However, it is important to compare the terms and conditions of the new credit card before you transfer your balance. You want to make sure that the new card has a lower APR and that there are no balance transfer fees.
APR and Cash Advances:
Cash advances typically have a higher APR than purchases. This means that you will pay more interest on cash advances than you would on purchases. If you need to get a cash advance, try to pay it back as soon as possible to avoid paying a lot of interest.
APR and Your Credit Score:
Your APR can also be affected by your credit score. If you have a good credit score, you may be able to qualify for a lower APR. Conversely, if you have a poor credit score, you may have to pay a higher APR.

By understanding how your APR impacts the interest you pay, you can make informed decisions about how to use your credit card.

Considered When Choosing Card

When you are choosing a credit card, it is important to consider the APR. The APR can vary significantly from one card to another. By choosing a credit card with a low APR, you can save money on interest.

Fixed vs. Variable APR:
As discussed earlier, credit cards can have either a fixed APR or a variable APR. If you are looking for certainty and peace of mind, a fixed APR may be a good option. If you are willing to take on some risk in exchange for the potential to save money, a variable APR may be a good option.
Introductory APR:
Some credit cards offer an introductory APR, which is a low APR that is available for a limited time. Introductory APRs can be a good way to save money on interest if you plan on paying off your balance in full before the introductory APR expires. However, it is important to read the terms and conditions carefully so that you are aware of the APR that will apply after the introductory APR expires.
Balance Transfer APR:
If you have a credit card with a high APR, you may want to consider transferring your balance to a credit card with a lower balance transfer APR. Balance transfer APRs are typically lower than purchase APRs. However, it is important to compare the terms and conditions of the new credit card before you transfer your balance. You want to make sure that the new card has a lower APR and that there are no balance transfer fees.
Rewards:
Many credit cards offer rewards, such as cash back, points, or miles. If you are looking for a credit card with rewards, it is important to compare the rewards programs of different cards to find the one that best suits your needs. However, it is important to remember that rewards should not be the only factor you consider when choosing a credit card. You should also consider the APR and other terms and conditions of the card.

By considering all of these factors, you can choose a credit card that meets your needs and helps you save money.

Lower APR Saves Money

As discussed earlier, the APR on your credit card is the interest rate you pay on your credit card balance. The lower your APR, the less interest you will pay. This can save you a significant amount of money over time.

For example, let's say you have a credit card balance of $1,000 and an APR of 15%. If you only make the minimum monthly payment of $25, it would take you over 10 years to pay off your debt and you would end up paying over $1,500 in interest.

However, if you were to get a credit card with a lower APR, such as 5%, you could pay off your debt in less than 3 years and you would only pay about $250 in interest. This would save you over $1,250 in interest.

Even if you can't get a credit card with a very low APR, getting a card with a lower APR than your current card can still save you money. For example, if you have a credit card with an APR of 15% and you get a new card with an APR of 10%, you could save hundreds of dollars in interest over time.

If you are carrying a credit card balance, it is worth shopping around for a credit card with a lower APR. This could save you a significant amount of money in interest.

Here are some tips for getting a credit card with a lower APR:

Shop around and compare APRs from different credit card issuers.
Consider getting a credit card with a balance transfer offer.
If you have a good credit score, you may be able to qualify for a credit card with a low APR.
If you can't get a credit card with a low APR, try to make extra payments on your credit card balance each month.

High APR Makes Debt Costly

As discussed earlier, the APR on your credit card is the interest rate you pay on your credit card balance. The higher your APR, the more interest you will pay. This can make it difficult to pay off your debt and can end up costing you a lot of money.

For example, let's say you have a credit card balance of $1,000 and an APR of 25%. If you only make the minimum monthly payment of $25, it would take you over 20 years to pay off your debt and you would end up paying over $2,500 in interest.

This is why it is important to avoid carrying a balance on your credit card if possible. If you do have to carry a balance, try to make more than the minimum monthly payment each month. This will help you pay down your debt faster and save money on interest.

If you have a credit card with a high APR, you may want to consider getting a credit card with a lower APR. This could save you a significant amount of money in interest. You may also want to consider getting a balance transfer credit card. Balance transfer credit cards typically have lower APRs than regular credit cards. This can help you save money on interest and pay off your debt faster.

If you are struggling to pay off your credit card debt, there are several resources available to help you. You can contact your credit card issuer and ask about hardship programs. You can also contact a credit counseling agency. Credit counseling agencies can help you develop a budget and a plan to pay off your debt.

It is important to remember that credit card debt can be very costly. If you are not careful, you could end up paying a lot of money in interest. By understanding how APR works and by taking steps to avoid carrying a balance on your credit card, you can save money and avoid debt.

Extra Payments Reduce APR

Making extra payments on your credit card balance can help you reduce your APR. This is because when you make extra payments, you are paying down your debt faster. This reduces the amount of interest you pay each month, which in turn lowers your APR.

How Extra Payments Work:
When you make an extra payment on your credit card, the extra money is applied to your principal balance. This is the amount of money you originally borrowed, excluding interest. By paying down your principal balance faster, you reduce the amount of interest you owe each month. This lowers your APR.
How Much to Pay Extra:
The amount of extra money you need to pay each month to reduce your APR depends on your current APR, your credit card balance, and the length of time you have had the card. A good rule of thumb is to pay at least 1% of your credit card balance each month in addition to your minimum monthly payment.
When to Make Extra Payments:
You can make extra payments on your credit card at any time. However, the sooner you start making extra payments, the sooner you will see a reduction in your APR. If you can afford it, it is a good idea to make extra payments every month.
Benefits of Making Extra Payments:
In addition to reducing your APR, making extra payments on your credit card can also help you pay off your debt faster and save money on interest. It can also improve your credit score.

If you are struggling to make extra payments on your credit card, there are several things you can do. You can try to cut back on your spending, get a side hustle, or ask for a raise at work. You can also contact your credit card issuer and ask about hardship programs. Hardship programs can help you reduce your monthly payments and interest rates.

Paying Balance Reduces APR

Paying your credit card balance in full each month is one of the best ways to reduce your APR. This is because when you pay your balance in full, you are not carrying a balance over to the next month. This means that you are not paying interest on your debt. As a result, your APR will be lower.

For example, let's say you have a credit card balance of $1,000 and an APR of 15%. If you only make the minimum monthly payment of $25, you will be paying interest on your debt for many years. This will increase your APR and make it more difficult to pay off your debt.

However, if you pay your balance in full each month, you will not be paying any interest on your debt. This will lower your APR and make it easier to pay off your debt.

In addition to reducing your APR, paying your balance in full each month can also help you save money on interest and improve your credit score.

If you are struggling to pay your credit card balance in full each month, there are several things you can do. You can try to cut back on your spending, get a side hustle, or ask for a raise at work. You can also contact your credit card issuer and ask about hardship programs. Hardship programs can help you reduce your monthly payments and interest rates.

Paying your credit card balance in full each month is the best way to reduce your APR and save money on interest. By making this a priority, you can improve your financial situation and reach your financial goals faster.

Compare Cards for Low Rates

When you are looking for a credit card, it is important to compare cards for low rates. The APR is one of the most important factors to consider when comparing credit cards. A lower APR means you will pay less interest on your debt. This can save you a significant amount of money over time.

There are a few things to keep in mind when comparing APRs:

Fixed vs. Variable APR:
As discussed earlier, credit cards can have either a fixed APR or a variable APR. Fixed APRs do not change, while variable APRs can change over time. If you are looking for certainty and peace of mind, a fixed APR may be a good option. If you are willing to take on some risk in exchange for the potential to save money, a variable APR may be a good option.
Introductory APR:
Some credit cards offer an introductory APR, which is a low APR that is available for a limited time. Introductory APRs can be a good way to save money on interest if you plan on paying off your balance in full before the introductory APR expires. However, it is important to read the terms and conditions carefully so that you are aware of the APR that will apply after the introductory APR expires.
Balance Transfer APR:
If you have a credit card with a high APR, you may want to consider transferring your balance to a credit card with a lower balance transfer APR. Balance transfer APRs are typically lower than purchase APRs. However, it is important to compare the terms and conditions of the new credit card before you transfer your balance. You want to make sure that the new card has a lower APR and that there are no balance transfer fees.

You can compare credit card APRs online or by contacting your local bank or credit union. It is important to compare APRs from multiple credit card issuers to find the best deal.

Once you have found a credit card with a low APR, you can apply for the card online or in person. Be sure to read the terms and conditions of the credit card carefully before you apply.

By comparing credit cards for low rates, you can save money on interest and improve your financial situation.

APR Affects Credit Score

Your APR can also affect your credit score. A high APR can be a sign that you are a risky borrower. This can make it more difficult to get approved for loans and credit cards in the future. It can also lead to higher interest rates on your other debts.

On the other hand, a low APR can be a sign that you are a responsible borrower. This can make it easier to get approved for loans and credit cards in the future. It can also lead to lower interest rates on your other debts.

There are a few things you can do to improve your APR and your credit score:

Pay your bills on time:
One of the most important factors in your credit score is your payment history. Paying your bills on time shows lenders that you are a reliable borrower. This can help you get a lower APR and a better credit score.
Keep your credit utilization low:
Credit utilization is the amount of credit you are using compared to your total credit limit. A high credit utilization can be a sign that you are overextended and struggling to manage your debt. This can lead to a higher APR and a lower credit score.
Get a credit mix:
Having a mix of different types of credit, such as revolving credit (credit cards) and installment loans (auto loans, mortgages), can help you improve your credit score. This shows lenders that you can manage different types of debt.
Apply for credit sparingly:
Applying for credit too often can hurt your credit score. This is because each time you apply for credit, a hard inquiry is made on your credit report. Hard inquiries can stay on your credit report for up to two years.

By following these tips, you can improve your APR and your credit score. This can save you money on interest and make it easier to get approved for loans and credit cards in the future.

Your APR is an important factor to consider when choosing a credit card. By understanding how APR works and by taking steps to reduce your APR, you can save money and improve your financial situation.

FAQ

Here are some frequently asked questions about APRs on credit cards:

Question 1: What is APR?
Answer: APR stands for Annual Percentage Rate. It is the interest rate you pay on your credit card balance each year.

Question 2: How does APR work?
Answer: APR is calculated by taking the total amount of interest you pay on your credit card balance over a year and dividing it by the average daily balance of your credit card.

Question 3: What is a good APR?
Answer: A good APR is generally considered to be anything below 15%. However, the best APR for you will depend on your individual circumstances.

Question 4: What is a bad APR?
Answer: A bad APR is generally considered to be anything above 25%. However, even APRs below 25% can be considered bad if you have a high credit card balance.

Question 5: How can I get a lower APR?
Answer: There are a few things you can do to get a lower APR, such as shopping around for credit cards, getting a balance transfer credit card, making extra payments on your credit card balance, and paying your credit card balance in full each month.

Question 6: How does APR affect my credit score?
Answer: A high APR can negatively affect your credit score. This is because a high APR can be a sign that you are a risky borrower. On the other hand, a low APR can positively affect your credit score.

Question 7: What is the difference between a fixed APR and a variable APR?
Answer: A fixed APR will stay the same for the life of the loan, while a variable APR can change over time.

Question 8: What is an introductory APR?
Answer: An introductory APR is a low APR that is available for a limited time. Introductory APRs can be a good way to save money on interest if you plan on paying off your balance in full before the introductory APR expires.

Closing Paragraph for FAQ:

These are just a few of the most frequently asked questions about APRs on credit cards. If you have any other questions, you can contact your credit card issuer or a financial advisor.

Now that you know more about APRs on credit cards, you can start taking steps to reduce your APR and save money.

Tips

Here are a few tips for managing APRs on credit cards:

Tip 1: Shop around for credit cards.
There are many different credit cards available, each with its own APR. By shopping around, you can find a credit card with a low APR that meets your needs.

Tip 2: Get a balance transfer credit card.
If you have a credit card with a high APR, you may want to consider transferring your balance to a credit card with a lower balance transfer APR. Balance transfer credit cards typically have lower APRs than regular credit cards. This can help you save money on interest and pay off your debt faster.

Tip 3: Make extra payments on your credit card balance.
Making extra payments on your credit card balance can help you reduce your APR. This is because when you make extra payments, you are paying down your debt faster. This reduces the amount of interest you pay each month, which in turn lowers your APR.

Tip 4: Pay your credit card balance in full each month.
Paying your credit card balance in full each month is the best way to avoid paying interest. This will also help you keep your APR low.

Tip 5: Be aware of introductory APRs.
Some credit cards offer an introductory APR, which is a low APR that is available for a limited time. Introductory APRs can be a good way to save money on interest if you plan on paying off your balance in full before the introductory APR expires. However, it is important to read the terms and conditions carefully so that you are aware of the APR that will apply after the introductory APR expires.

Closing Paragraph for Tips:

By following these tips, you can manage your APRs on credit cards and save money.

By understanding APRs and taking steps to manage them, you can save money and improve your financial situation.

Conclusion

APR is an important factor to consider when choosing a credit card. The APR you pay will determine how much interest you pay on your credit card balance each year. By understanding APRs and taking steps to manage them, you can save money and improve your financial situation.

Here are some of the key points to remember about APRs:

APR stands for Annual Percentage Rate.
APR is the interest rate you pay on your credit card balance each year.
APRs can be fixed or variable.
A lower APR means you will pay less interest on your debt.
You can reduce your APR by shopping around for credit cards, getting a balance transfer credit card, making extra payments on your credit card balance, and paying your credit card balance in full each month.
Your APR can also affect your credit score.

If you are struggling to manage your credit card debt, there are several resources available to help you. You can contact your credit card issuer and ask about hardship programs. You can also contact a credit counseling agency. Credit counseling agencies can help you develop a budget and a plan to pay off your debt.