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What is a Variable APR?

Published December 22, 2022
2 min read

Key Points About: Variable APR Credit Cards

  1. A variable APR means that the annual percentage rate of interest on your credit card is not fixed but can change based on market conditions.

  2. 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.

  3. A good credit score can help you qualify for the best starting variable APR.

If you borrow money through a loan, credit card, 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 and 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. Creditors 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. Most also start at higher interest rates than variable rate cards.  

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.

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).

Banks set their own prime rates according to the interest rate they pay when borrowing from other banks overnight; that interest rate is called the federal funds rate. The Federal Reserve adjusts the federal funds rate based on economic factors such as inflation

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?

Did you know

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, including a 0% intro APRLow 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 rangeyou may qualify for before you apply for a credit card.

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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