Credit Card APR

The APR, or annual percentage rate, is an integral part of the features of any credit card.

What is an APR?

Your credit card's APR tells you how much interest you will pay on balances you carry on your account. This is an annual rate so, for example, if you carried a balance of exactly $100 every month for a year on a card with a 10% APR, you will pay $10 in interest over the course of the year.

You may have a number of different APRs for your card when you use it in different ways. For example, balances incurred from using your card to take cash out of an ATM or using credit card cheques often face a higher interest rate than on the amount you spend on standard purchases.

You will also probably see a different APR for balance transfers. This is when you transfer a balance from one card to another, usually in the hope of paying less interest in the long run.

Make sure you're aware of the order in which payments are applied to your account when calculating how much interest you are likely to pay. For example, many cards apply payments to balances with lower interest rates first so you could end up paying more interest than you might think. If you use your card to make $500 in purchases one month and then take $100 from an ATM using the card, but only pay $200 off your statement, you will most likely be paying interest on $300 at one interest rate and $100 at another interest rate. Check your card's terms and conditions to find out how payments are applied for your specific card.

What APR will I Receive?

Most cards will have a number of different APRs for different clients. The rate you receive will for the most part depend on your credit history. Those with perfect credit will most likely receive the lowest rate available. If your credit report isn't so great, you may face a much higher interest rate.

Also be aware that rates can vary widely from card to card. Those cards offering rewards, cash back or airline miles will often have higher interest rates than those that don't have any of these tempting extras. If you're likely to carry a balance on your card you may be wise to ignore the rewards on offer and concentrate on finding the lowest APR available for you.

Low Interest Rate Offers

Many cards these days offer special introductory interest rates. These are usually for balance transfers but you can also find special rates on purchases too. Finding a card with a 0% APR on balance transfers can be a great way to reduce your monthly interest and get those balances paid off if you are currently carrying balances on other cards. Don't forget though that payments may be applied to these balances first, so if you are also planning to make purchases on the card don't forget to take into account the interest rate for those balances also.

You should also take into account how long the offer is valid for, how long it will take you to repay the balances and also the APR once the initial offer has ended. For example, one card might offer a 0% APR for 6 months and will then revert to a much higher rate once those 6 months have passed. Another card may have a reduced interest rate on balance transfers of say, 3.9% but this is for the life of the balance. Try to figure out which you will be better off with in the long run rather than assuming it will always be the card with the 0% interest rate.