Your credit card interest rate determines how much it will cost you to carry debt on your credit card. Also referred to as the annual percentage rate or APR, it's what the bank charges you for the privilege of using its money.
Here are some answers to basic questions about your credit card interest rate.
What is a credit card APR?
A credit card APR determines the cost of borrowing money with your card when you don't pay it back right away.
If you pay less than the full amount of your credit card bill — for example, if you make only the minimum required payment — the remaining unpaid debt will carry over to the next month, and you'll be charged interest based on your card's APR. It's like you're taking out a loan for that unpaid amount, and paying interest on it.
As noted, the "A" in APR stands for annual, meaning interest rates are expressed in annual terms. If the APR on your card is 20%, then if you carried $1,000 in debt on that card for a year, you'd pay $200 in interest, or about $17 a month.
On the other hand, if you pay the full balance of your credit card bill each month, you'll pay no interest, and the card's APR will be inconsequential.
🤓 Nerdy Tip
Credit card companies state their interest rates in annual terms even though you're usually paying the bill monthly, and interest is assessed on your average daily balance. To get into the math of APRs, read about how credit card interest is calculated. How do I find my credit card interest rate?
Your card's purchase APR shouldn't be hard to find. It will always be on your monthly account statement, and you can often find it by logging into your account online or the issuer's app. If necessary, call the phone number on the back of the card and ask a customer service rep.
In addition, the rate will surely be in the most recent version of the card's terms and conditions. In the terms and conditions — essentially the fine-print legalese — you'll find a table called a Schumer box at the top. It's a federally required disclosure of rates and fees. Your APR will feature prominently in the table.
You may also see other types of APRs.
Different types of credit card APRs
A single card could have different types of interest rates.
- Fixed vs. variable. Some cards have a fixed rate, meaning it doesn't typically change over time (although even fixed rates can occasionally change). Most credit card interest rates are variable, meaning they change when other rates in the economy do. Credit card rates are commonly tied to the prime rate. When the prime rate goes up (or down), so do card rates.
- Ongoing vs. temporary. Some cards offer temporarily low rates as a promotion. For example, new customers might be offered 0% interest for the first 12 months of having the card. Eventually every card settles into its regular ongoing rate.
Here are some common types of APRs:
- Purchase APR. This is the primary APR for the card. It applies to purchases when you carry a balance. However, as noted above, cards can have a different introductory rate for new purchases for a period.
- Balance transfer APR. Some cards offer a 0% APR period for balances transferred onto the card. For example, you might see, "0% intro APR on balance transfers for 18 months."
- Cash advance APR. If you use your credit card to get cash, like out of an ATM, you'll typically incur a very high APR that starts getting charged immediately.
- Loan rates. Some card issuers allow you to use your credit line to take out a loan. For example, Chase has a feature called My Chase Loan. Citi calls its version Citi Flex Loan. They have their own APRs. These tend to be lower than the cash advance APRs.
- Payment plan APR. Some cards have special features that allow you to identify individual purchases and make payments sppecifically on them over time. That feature could have its own APR. Examples include American Express' Pay It Plan It®, My Chase Plan and Citi Flex Pay.
- Penalty APR. If you fail to make the minimum payment on time, the issuer might raise your overall APR substantially to a penalty rate.
Again, you can find all these rates disclosed in your credit card's Schumer box.
What affects my interest rate?
Your credit card issuer can change your interest rate. Here are some factors that affect the rate.
- Market conditions. Prevailing short-term interest rates directly impact the rates you'll pay on your credit card. They mostly move in lock-step. When short-term interest rates go up, such as the prime rate, rates on your credit card are likely to rise. Your card's terms and conditions might say: "We add 12.74% to 19.74% to the prime rate to determine the APR … ." In that case, if the prime rate is 5.25, your APR would be 17.99% to 24.99%. So when you hear that the Federal Reserve is raising interest rates, that means credit card debt will get more expensive.
- Card type. Some cards are designed to offer lower-than-average interest rates, while others charge high rates because they focus on other features, like rewards. In general, credit unions are known for issuing cards with lower-than-average APRs. On the other hand, premium travel credit cards generally charge high rates.
- Your creditworthiness. You'll often see APRs expressed as a range, like "15.99%-22.99% variable APR." As with many types of loans, people with better credit generally get lower interest rates. But, again, if you miss a payment, you could see your APR rise.
Now, when you see that disclosure about a credit card APR, you'll know what it precisely means.
