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What is a Purchase APR?

Last Updated: October 3, 2023

5 min read

Key points about: Your credit card’s purchase APR

Your purchase APR (Annual Percentage Rate) is the interest rate you pay for purchases you make with your credit card.
Purchase APRs are either fixed (won’t change without advance notice) or variable (can fluctuate without notice).
Having a good credit score can help you qualify for lower available APRs.

You may be familiar with the acronym APR. APR is short for “annual percentage rate,” which determines the interest you pay yearly on a borrowed amount. But what does that mean in dollars and cents, and how does it impact your credit card spending?

A purchase APR is simply the interest rate applied to purchases you make with your credit card. However, you only get charged interest if you don’t pay your credit card balance by the payment due date at the end of each billing cycle (usually the end of the month). In other words, if you carry a balance from one month to the next, you’ll owe interest on top of what you owe for your purchases. And the higher your APR, the higher your unpaid balance.

Let’s take a closer look at purchase APRs, including what it takes to qualify for the lowest rates.

Where can you find your purchase APR?

You can usually find your purchase APR in a few places:

At the top or near the end of your monthly card statement, in a section explaining how your interest charges get calculated every month
In the terms and conditions agreement you receive with your credit card
In the account details documented in your online account

How do you calculate your interest based on your purchase APR?

For the “Daily Balance” method, you can convert your APR to a daily percentage rate to determine how much interest you pay on your balance daily. To do so, divide your APR by the number of days in a year. At the end of each day, the card issuer will multiply your current balance by the daily rate to generate the daily interest charge.

For example:

If you have an 18% credit card APR, it will have a daily rate of 0.049%. Let’s say you have a balance of $500 at the 18% APR standard interest rate. The next day, the interest gets added. The balance then becomes $500.25, plus any additional purchases and minus any new credits or payments.

This process (called compounding) occurs each day until the end of the customer’s monthly statement cycle. At the end of a month with 30 days, the beginning $500 balance becomes $507.45 when interest charges are applied at 18% APR. Of course, you don’t have to worry about interest fees if you can pay your balance in full each month.

Check out the Discover Credit Card Interest Rate Calculator to calculate your credit card interest based on your APR, balance, and monthly payment. Also, see how adjusting your payment could shorten your pay-off time.

Are there different types of purchase APRs?

There are a few different purchase APRs. Each type differs by its impact on how much interest you may owe on balances carried from one month to the next.

Variable APR

A variable purchase APR is a fluctuating rate tied to a prime rate. Banks determine their own prime rates, influenced mainly by the federal funds rate they use when borrowing from each other. The Federal Open Market Committee, a committee within the Federal Reserve, sets the federal funds rate.

Your variable APR gets calculated using the prime rate plus an added margin set by your credit card issuer. The more it costs banks to borrow the money they lend to you, the higher your APR might rise. However, your rate could also decrease if the prime rate goes down. Your credit card agreement should explain when the card issuer might adjust your rate.

Fixed APR

Credit card offers with a fixed rate are increasingly rare. And while a fixed APR isn’t tied to an index such as a prime rate, it can change, just not as frequently as a variable APR.

In most cases, credit card companies have to notify customers ahead of fixed rate increases. According to the Office of the Comptroller of the Currency, they also can’t change the rate for the first year after the card is issued. But there are exceptions. For example, late payments may trigger a rate increase, fixed APR or not.

Introductory APR

An introductory purchase APR is a temporary interest rate sometimes offered when you get a new credit card. At the end of this promotional period, your purchase APR will return to a regular rate and apply to your unpaid credit card balance and future purchases.

Did you know?

Introductory purchase APRs are usually much lower than regular purchase APRs, even as low as 0%. Credit cards with an intro 0% APR, like the ones offered by Discover, are ideal for making and paying off large purchases during the promotional period.

Are there other credit card APRs besides your purchase APR?

Aside from your purchase APR, you may encounter other APRs when using your credit card.

Balance transfer APR

A balance transfer is when you move a balance from one credit card to another (usually with a lower interest rate to pay off a debt with a higher interest rate). The interest charged on the balance transfer amount is your balance transfer APR and may be higher than your purchase APR. Many credit card issuers also charge a balance transfer fee.

Some credit cards offer a low intro APR on balance transfers. With regular monthly payments, a low introductory APR can make it easier to pay what you owe.

Penalty APR

You may get charged a penalty APR if you have one or several late payments or have exceeded your credit limit. A penalty APR is higher than your purchase APR. Your terms and conditions agreement should provide your issuer’s late payment policy.

Cash Advance APR

Some credit cards let you withdraw cash up to a specified limit, called a cash advance. Your cash advance APR is usually higher than your regular purchase APR, and an intro APR rarely applies to cash advances.

How do you get a low purchase APR?

Apart from understanding purchase APRs, you may be wondering how to get the best credit card interest rate. Credit card purchase APRs can range depending on your credit score but you can checkout our current APR range.

You’ll need a strong credit score and history to qualify for a low APR. Building good credit may also qualify you for promotional offers like a 0% intro APR. Equipped with an understanding of purchase APRs, you can better manage your borrowing and make the most of your credit card’s benefits.

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