When you take out a line of credit, your bank or credit issuer has the right to charge interest on any money you borrow. In the case of credit cards, this interest often comes in the form of purchase APR. Although purchase APR is not the only type of interest rate that a credit card issuer might charge, it is the most common interest rate associated with credit cards.
If you never take out a cash advance on your credit cards, for example, you’ll never have to worry about cash advance interest rates—but since you’ll likely use your credit card to make purchases, you’re going to want to know how purchase APR works.
In general, purchase APR is the interest applied to any credit card purchases that aren’t paid off in full before the credit card grace period ends. However, there are a lot of other factors—introductory rates, penalty rates, etc.—that can make credit card APR a little more complicated.
What is regular purchase APR, and how does it differ from an introductory APR? How can you find your current purchase APR? What’s a good APR on a credit card, and how can you choose the credit card that offers the best APR for you? Let’s take a look at some of the most common questions associated with purchase APRs.
What is regular purchase APR?
The regular purchase APR is the interest rate applied to purchases as long as no other APR takes precedence. If you have a credit card with an introductory APR period, for example, your credit card issuer will apply the introductory APR rate to purchases until that rate expires. After that, you’ll pay the regular purchase APR.
If you’re planning to carry a balance on a credit card, the purchase APR is an important number to keep in mind. It can make a huge difference in how much interest you’ll pay over time.
For example, if you make a $3,000 purchase on a card with a 15 percent APR, with $200 monthly payments you’ll pay off your balance in 17 months and pay a total of $343 in interest. If instead, you make the purchase on a card with a much higher 25 percent APR, it will take an extra two months to pay off your debt with the same monthly payments and you’ll pay almost double the interest—a total of $634.
You can check out Bankrate’s credit card calculators to learn more about how different interest rates can impact your debt.
Like most credit card interest rates, the regular purchase APR is usually a variable interest rate. This means that your purchase APR could shift up or down slightly depending on the prime interest rate—but don’t worry. In most cases, you won’t even notice the change.
What is a good APR for a credit card?
If you want a credit card with a good purchase APR, look for cards that offer interest rates at or below the average credit card APR—which is currently around 16 percent.
That said, keep in mind that a good APR for a credit card can differ from person to person. If you have below-average credit, for example, credit card issuers will probably offer you interest rates that are a few percentage points higher than the APR a person with good or excellent credit might receive.
This is why you should look at a credit card’s APR range before deciding whether to apply for a new card. The Citi® Diamond Preferred® Card, for example, is designed for people with good to excellent credit and offers a regular purchase variable APR of 13.74 percent to 23.74 percent. The Chase Sapphire Preferred® Card, on the other hand, is designed for people with good or excellent credit—and its regular purchase variable APR ranges from 15.99 percent to 22.99 percent.
Which card offers the best APR: the Citi Diamond Preferred or the Chase Sapphire Preferred? It may depend on your credit score and whether you’re likely to fall on the low or the high end of the interest rate range.
How do introductory APRs work?
Some credit cards offer introductory APRs that are lower than the regular purchase APR. In most cases, these credit cards will offer 0 percent interest for a specific period of time—often for 12 or 18 months.
These zero-interest credit cards are good for people who want to fund a large purchase (such as a vacation) without accruing interest on their purchase—at least until the introductory APR period ends. People also use balance transfer credit cards with 0 percent intro APR periods to pay off old credit card balances without paying interest.
Let’s go back to that example above of a $3,000 purchase. If you put that on a credit card with a 0 percent intro APR period for 18 months, those same $200 monthly payments will knock out your debt in 15 months before the regular APR kicks in, meaning you won’t pay any interest on that balance.
Introductory APR credit cards are great for people who can pay down any balances they charge (or transfer) to the credit card before its 0 percent introductory rate expires. What happens when your 0 percent intro APR period ends? The credit card issuer will begin applying the regular purchase APR to any balance remaining on the card, as well as any new purchases you charge.
How to find your current purchase APR
There are two ways to find your current purchase APR. The first way to learn your current purchase APR is by reading your monthly credit card statement. Look for a section labeled “Interest Charge Calculation.” This is where you will find your current purchase APR.
If your credit card is currently offering a promotional or introductory APR, this section of your statement will also let you know how much longer the promotional APR will last. That way, you can be prepared to pay interest on any balances remaining after your 0 percent intro APR ends.
The other way to find your current purchase APR is by logging into your credit card account online or through the issuer’s app. You should be able to find your APR by reviewing your card details. You can also use your online account to pull up your most recent credit card statement, which will include your current purchase APR.
The bottom line
Knowing how credit card purchase APR works can help you make smart decisions about which credit card to choose—and how quickly you might want to pay off your credit card balances. Remember that the regular purchase APR applies when no other interest rate takes precedence. If your credit card has an introductory interest rate, for example, the regular purchase APR will kick in when the intro rate expires. If you want to know your current purchase APR, check your credit card statement or log into your account.