Whenever you apply for a credit card, you’re likely to see the term “APR” — which stands for annual percentage rate — in the term details for the card. This acronym can have a big impact on your finances. Some cards, like 0% intro interest credit cards, come with 0% APR periods for an exact amount of time that can help you get time to pay off what you owe. No interest credit cards can also help when you want to move a balance from one credit card to a new credit card with better terms, perks or other features.

For consumers who owe a lot on their cards, a high APR can lead to debt. Whether you’re new to credit cards or need a refresher on the various APR terms, use this guide to understand how APR can affect your credit card usage and financial situation.

What is an APR?

Your APR determines the total amount you’ll owe on credit card balances you don’t pay off by your due date. It’s basically the credit card interest rate for all of your purchases. However, APRs can also apply to other features such as penalties, cash advances and balance transfers. When you’re comparing credit cards, you’ll want to take into account APRs for these features. Unless you make all payments in full and on time, an APR will affect how much you owe in your overall financial picture.

APRs can vary greatly, but as of November 2019, the average APR for all credit card accounts was 14.87%. This is up from 12.09% in 2015, which shows that APRs are generally on an upward trend. But what does this actually mean for you? Let’s say you have a $1,000 credit card balance, but you can only pay $100 a month toward it. Using a 14% APR, you’ll end up paying a total of $69.62 in interest during the 11 months it will take you to pay off the debt, according to Bankrate’s calculator.

How are APRs determined?

APRs may be determined by several factors, including the type of card and issuer. In many cases, a bank or credit card issuer may offer a card designed with a specific APR in mind to attract certain types of credit cardholders. For example, an issuer might provide a credit card with a long 0% intro APR period on purchases to applicants with good to excellent credit. After the intro period, the APR returns to a normal rate.

On the other side of the spectrum, the APR for purchases on a credit-building credit card might be higher than the APR on a travel card. Additionally, cards with certain types of rewards structures may also have higher APRs. For example, a rewards credit card that earns hefty rewards on certain purchases may come with a higher APR, so that if a cardholder is racking up purchases to get rewards, they’ll still need to be responsible and pay off those purchases or else incur higher debt.

APRs are also aligned with credit scores. A credit score is an indication of the level of credit responsibility a cardholder has. When someone has a low credit score, the card issuer may view them as riskier and apply a higher APR to encourage on-time payments or get protection for late payments. When someone has a high credit score, they may be viewed as more likely to make on-time, in-full payments, which may give a card issuer more confidence when lowering an APR. High APRs equal higher accrued interest charges, which is why it’s very important to be aware of your APR and track APRs or consider transferring your balance to a card with a 0% intro APR if you’re not able to pay off your balances in full.

APRs may be calculated monthly or daily, depending on the card. Often, a single card will have multiple APRs that vary depending on what they apply to (purchases vs. balance transfers, for example.) APRs are typically either variable or fixed. A variable APR will fluctuate based on the index interest rate, which is determined by the Federal Reserve. Usually, credit cards have a variable APR for items like purchases, cash advances and balance transfers. Fixed APRs, on the other hand, stay the same. Fixed APRs usually apply to loans or other forms of long-term borrowing.

When a credit card has an APR range, the issuer will choose your APR, using factors like your credit score to determine your rate. After you’ve been approved for a card, you may be able to contact your bank or card issuer to request for a lower APR. Factors like on-time payments may be able to play a part in getting you a lower future APR, so make sure you have a strong history of on-time payments before you contact your issuer.

Different types of APRs

When you’re looking over the fine print of a credit card’s terms, consider the following APRs to make the best decision.

  • Intro or promotional APR: This APR is the rate you’ll get for a certain amount of time after you get a new card. Some cards offer 0% intro APRs on purchases, balance transfers and/or a combination of the two. This gives cardholders the ability to get used to using a card without having to worry about APR payments for a certain amount of time. Low or 0% intro APR periods can also help cardholders pay off balances that are transferred or give them the time they need to pay off a large purchase.
  • Balance transfer APR: A balance transfer APR applies to credit card balances that are moved from one credit card to a new credit card. After an intro or promotional balance transfer APR period, the balance transfer APR will then rise to a standard (usually variable) rate. There are many balance transfer credit cards that provide 0% intro APR on balance transfers. This gives cardholders the ability to pay off their balance without having to pay extra interest or fees on top of it. These types of cards can be beneficial when you need extra time to pay off a balance, or when you want a new card because of the perks it offers and need to move a balance from an old card.
  • Purchase APR: Also called regular purchase APR, the purchase APR is the interest you’ll owe on purchases if you don’t pay them off in full by the due date after an intro or promotional APR period has ended. When you let purchase balances carry over to the next billing cycle, you’ll have to pay money on top of what you owe for your charges. This increases your debt. Some issuers will offer 0% interest credit cards, with 0% intro APR on purchases for a certain amount of time. These can be beneficial when you want to make big purchases and will need extra time to pay them off.
  • Cash advance APR: Some credit cards will have a cash advance limit, which enables you to get the cash you need by borrowing with your credit card at an ATM or bank. Cash advances typically have a higher APR than credit card purchases or balance transfers, because they’ll include extra fees and service charges. Using a cash advance is much more costly than getting cash with a debit card, since you’ll have to pay the extra fees in a cash advance APR, which can sometimes be almost double the purchase APR.
  • Penalty APR: When a cardholder falls behind on payments, the card issuers may apply a penalty APR to purchases. This is a higher APR than what the cardholder was used to with previous purchases. The penalty APR may be applied to existing balances when a consumer hasn’t made a payment in a certain number of days, and/or it may be applied to new purchases. A card issuer will notify the cardholder about the increased APR. After several months of a penalty APR being applied, the card issuer will reassess an account to determine whether the initial regular purchase APR should be reinstated. Check with the issuer terms for timeline expectations.

How to lower your APR or avoid interest altogether

The best way to lower your APR and avoid interest altogether is to pay off your balance in full every billing cycle. This helps you avoid purchase APR and stay far away from penalty APRs on late payments. At the bare minimum, you want to pay off the minimum payment due to avoid interest. The best rule of thumb is to only use your credit card to make purchases that you know you can afford. By using the card responsibly, you can be sure that you won’t land yourself in debt.

Another way to lower your APR before you apply for a new card is to give your credit score a boost. Lower the existing balances on the other cards you have by making payments, which will impact your credit utilization. Retain your credit history by keeping long-standing accounts open. You may also consider asking your current issuer for an increased line of credit. This may result in an inquiry on your credit report, which can temporarily lower your score, but as you increase your available credit and lower your credit utilization, you can boost your score. The higher your creditworthiness, generally the lower APRs you’re able to secure. A higher credit score also gives you more credit card options, which may include no-interest credit cards with a 0% intro APR for purchases and/or balance transfers.

Speaking of which — look into balance transfer credit cards with 0% intro APR periods can help you avoid credit card interest. These cards give you a way to pay off your credit card balance interest-free for a certain amount of time. If you know you need 0% intro APR credit cards for purchases, you also have options. As an added plus, most of the 0% intro APR and balance transfer cards we review offer a 0% intro APR on purchases and balance transfers.

If you’re not happy with your current APRs, you can contact your card issuer to ask about your options. Use the number on the back of your card to get in touch with the issuer’s customer service team. If you’ve made on-time payments and are a responsible credit card user, and/or you’ve increased your credit score, you may be able to negotiate lower APRs with your issuer. Card issuers want to keep your business as a cardholder, so they may be willing to negotiate with you when you explain your unique situation to them. When speaking with them, have a clear goal in mind and evidence that shows you deserve a lower rate.

In general, the easiest way to get a lower APR is to apply for a new card. If a 0% intro APR or balance transfer card isn’t a fit for you, look for a card with a lower ongoing interest rate than your current rate. Our best credit cards page is a good place to start your search.