What is an APR?

Posted by Caitlin on August 21st, 2008

Your APR, or annual percentage rate, is the yearly interest rate you will pay if you carry a balance on your credit card. You will also be charged interest if you transfer a balance from another card or take out a cash advance. One credit card may have several different APRs. There may be one percentage rate for purchases, a different rate for balance transfers and another for cash advances. The annual percentage rates for balance transfers and cash advances tend to be higher than the purchase APR.

Many credit card offers advertise an introductory APR, which is usually a low interest rate or even no interest whatsoever for the first few months. Keep in mind that this low APR will go up after the introductory period ends. If you fail to pay your credit card bill on time, you may cause your introductory rate to expire earlier than promised. There are also tiered APRs, in which higher outstanding balances are subject to higher interest rates. And there are penalty APRs, which are higher interest rates that go into effect if you are late making payments.

You may have a "variable rate" APR or a "fixed rate" APR. If you have a fixed rate APR, it will rarely change, and your credit card company must notify you before it increases. If you have a variable rate APR, it will change based on either the prime rate or the Treasury Bill rate. Anytime the Federal Reserve raises or lowers the prime rate, your credit card APR will rise or fall accordingly.

Credit card offers often advertise a range of different interest rates for a specific credit card. Generally, only customers with excellent credit will qualify for the lowest of these interest rates, while other customers may be approved for the credit card, but will be charged a higher APR.

To learn more about choosing the right credit card for you, view our credit card reviews and comparisons.