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What is a Variable APR?

Last Updated: January 8, 2024

3 min read

Key points about: variable APR credit cards

A variable APR means that the annual percentage rate of interest on your credit card is not fixed and may change based on market conditions.
Most credit cards have a variable APR, and they may have one APR for balances carried past the due date and another APR for cash advances.
A good credit score can help you qualify for the best starting variable APR.

If you borrow money through a fixed rate loan, or other financial product, you may expect to pay the same monthly interest rate on your balance. However, if your borrowing terms include a variable annual percentage rate (APR), you’re likely to see your interest charges fluctuate periodically. Some forms of lending that may have a variable APR include credit cards, personal loans, auto loans, and mortgages.

How is a fixed APR different from a variable APR?

A fixed APR is set based on the market conditions when credit is issued. Fixed APRs don’t fluctuate with market conditions but can increase due to other factors, such as late payments, according to HelpWithMyBank.gov. Credit card issuers are required to inform cardmembers ahead of fixed rate increases.

While student loans and certain types of mortgages are often eligible for a fixed APR, fixed-rate credit cards are rare.

What is a variable APR credit card?

A variable APR credit card is the most common type of credit card. Variable APR credit cards have interest rates that fluctuate periodically. The terms and conditions of your credit card should specify when your credit card company can change your variable APR.

Did you know?

Discover offers qualifying new cardmembers low intro APR offers for balance transfers and purchases that could help you pay less interest and save you money.

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What influences a variable APR?

The interest rate on your variable APR credit card is the prime rate (the baseline rate lenders use when deciding what rate to charge customers) plus a margin determined by the bank and based on factors like your creditworthiness (how likely you are to pay back what you borrow), according to the Federal Reserve.

Banks typically choose to set their prime rates partly on the interest rate they pay when borrowing from each other for short-term loans; that interest rate is called the federal funds rate, according to the Federal Reserve. The Federal Reserve adjusts the federal funds rate based on economic factors such as inflation, according to Virginia Commonwealth University.

In other words: if the Federal Reserve raises the federal funds rate due to high inflation, that could increase your lender’s costs to borrow funds. Your lender may pass that increase onto you by raising their prime rate and, inevitably, your variable APR.

How do you get the lowest variable APR?

When you apply for a new credit card, your credit history is the strongest indicator of your qualifying APR. A good credit score shows a lender you’re responsible with credit, which can help you get the lowest variable APR available, which may include a 0% intro APR. Low intro APR offers have temporary introductory rates. When the introductory period ends, the APR returns to the variable rate, which applies to your current and future balances.

Completing the Discover pre-approval form will give you an idea of an APR range you may qualify for before you apply for a credit card. There is no harm to your credit score to check for pre-approval.¹

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When it comes down to it, understanding how your variable APR gets set and why it changes can help inform your decisions about borrowing.

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