What is the average APR on a credit card?
APR (annual percentage rate) is one of the key factors you should consider when shopping for a credit card. Here’s what the average APR is and why it should matter to you.
If you carry a balance from month to month, a high annual percentage rate (APR) can essentially wipe all those rewards away, leaving you with a nice-looking card but none of the benefits to show for it.
When looking at new credit card offers, knowing the average APR can help you compare how expensive borrowing money will be.
To help you find the right credit card for you, let’s dig into what APR means in practical terms. We’ll then look into the average APR on a credit card and highlight some ways to find the lowest APR credit card available to you.
What does APR means?
A credit card’s interest rate is the price you’ll pay for borrowing money. For credit cards, interest is typically expressed as a yearly rate known as the annual percentage rate.
Although APR is expressed as an annual rate, your credit card company uses it to calculate the interest charged during your monthly statement period.
Generally, credit card companies offer a grace period for new purchases. This period is the gap between the end of your card’s billing cycle and the date your payment is due. With most credit cards, if you pay off your balance in full and have no outstanding cash advances, you won’t be charged interest on new purchases during the grace period.
Heads up, though: If you pay less than the total balance, you’ll pay interest on your outstanding balance.
Common Question :
Does every credit card have a grace period?
No. Credit card issuers aren’t required to offer a grace period. The good news is that many still do. And if your card has a grace period, the issuer must ensure bills are mailed or delivered at least 21 days before the due date.
To calculate how much interest, you’ll pay each day you carry a balance, you can convert your annual percentage rate to a daily percentage rate by dividing it by 365. At the end of each day, the credit card company multiplies the current balance on your account by the daily rate. That daily interest charge is added to your balance the next day.
How much does a credit card’s APR actually matter to you?
If you pay off your balance in full each month and don’t miss any payments, APR doesn’t have to be your primary concern. You may be better off looking for a card that offers the best rewards, cash back.
But if you carry a balance from month to month or plan on financing a large purchase with plastic, choosing a low-interest credit card could save you a significant amount on interest and help you pay off the balance faster.
Finding the lowest rate available to you means comparing offers and card terms carefully. Here’s what you should look for:
- Introductory/promotional APR. Many cards offer an introductory APR, usually 0 percent on balance transfers or purchases for anywhere from a few months to a year. This can be super helpful, but make sure you read the terms and conditions and pay off your balance before the APR jumps up to its regular rate.
- Regular APR.After the introductory period, most cards offer a range of variable APRs depending on your creditworthiness. Generally speaking, the lower end of the APR range is reserved for consumers with good to excellent credit. On the other side of the token, the higher APRs are for consumers at the lower end of eligible credit scores. Your actual rate will be determined by the issuer when you apply, but looking at your credit scores before applying may give you a better idea of what to expect.
- Cash advance APR. Banks and issuers typically charge a higher rate for cash advances, and interest accrues the moment you take the advance — sorry, no grace period here. For this reason, we recommend avoiding credit card cash advances whenever possible.
- Penalty APR. If you miss a payment, the credit card company may raise your rate in addition to charging you a late fee.