Finding the Best Credit Card APR
“What’s a good credit card interest rate?”
Have you picked up your mail lately? If so, youâ€™ve probably noticed bright, colorful, attractive APRs featured on the outer envelope of credit card offers. And if youâ€™re in the market for a new card, comparing these rates is important.
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But you might be wondering: what is a good APR? When you understand how APRs work, and how to compare them â€“ youâ€™ll know exactly what youâ€™re paying, and avoid any unexpected surprises.
How do credit card rates work?
The price tag for borrowing money is explained by the interest rate. For credit cards, this is expressed as a yearly rate, better known as the annual percentage rate (APR). For example, letâ€™s say you have a balance of $1,000 on your credit card, with an APR of 18 percent. If you hold that balance over a year, the total interest paid annually is $180. You would pay that $180 divided over 12 months, resulting in a monthly interest payment of $15.
Single card, multiple APRs
A single credit card might have multiple APRs. For example, the â€śintroductoryâ€ť APR on a new card offers a low rate for a set amount of time. The introductory rate might be 2.99 percent for six months, and 17 percent after. Credit card companies are required to disclose the rate after the introductory offer expires, so read the fine print.Â Introductory and promotional rates can also apply to other balances, like balance transfers.Â When taking advantage of these offers, consider the balance transfer fee. For example, a promotional APR of 2.9 percent might have a one-time 3 percent balance transfer fee. So be sure to factor in these costs as well when making your decision.Lastly, your card might have different APRs for new purchases, cash advances and other types of transactions. To secure the lowest APR possible, focus on raising your credit score.
Fixed vs. variable rates
Most people think about houses and cars having fixed rates, and credit cards having a variable rate. But in fact, credit cards might have either one. A variable rate changes with an indexed interest rate, such as the Prime Rate published in The Wall Street Journal.In contrast, fixed rates are not tied to an index. That doesnâ€™t mean they canâ€™t change though. Credit card companies can still increase the rates on a fixed card; they just have to provide written notice ahead of time.Some credit cards have a fixed APR, but only for a defined period of time. For example, an introductory rate may offer a fixed low APR for a set period. Once the term is up, the APR reverts back to a variable rate.A great source of information is your cardholder agreement. This valuable document discloses when and how your APR can change.
Equip yourself with tools for comparing rates
Before selecting a new card, itâ€™s helpful to compare rates. For example, cash back rewards drive down your overall cost, allowing you to receive money back for using your card. Other money saving benefits, like supplemental travel insurance and discount marketplaces, are also helpful when comparing cards.And letâ€™s not forget the annual fee. After all, nobody is thrilled to pay an extra $50, $75 or more annually. So read over the terms carefully, which disclose all fees, including fees for late payments, foreign transactions, over limits, balance transfers, and more.Understanding the types of APRs, when they apply â€“ and what to watch out for is no easy task.Â
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