What is a purchase APR?

When you borrow money — whether you’re making a purchase on a credit card, applying for a car loan or taking out a mortgage — your bank or credit issuer has the right to charge interest on the money you borrow in the form of a purchase APR (annual percentage rate). Although a 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 card purchases.

In most cases, a 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 — like introductory rates or penalty rates — that can make credit card APRs a little more complicated.

What is purchase APR?

A card’s regular purchase APR is the interest rate applied to purchases as long as no other APR takes precedence. If you’re planning to carry a balance on a credit card, the purchase APR is an important number to keep in mind, as 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 and put $200 towards your credit card bill every month, you’ll pay off your balance in 17 months and pay a total of $343 in interest.
• Alternatively, if you make a $3,000 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 $200 monthly payments, and you’ll pay a total of $634 in interest.

Even though your APR increased by just 10 percent, the total interest you pay nearly doubles from $343 to 634.

Other types of APR

Making new purchases is the most common type of credit card transaction, so a purchase APR is usually the most important figure to remember. But there are several circumstances when a different APR may apply.

• Balance transfer APR. Debt transferred from another credit card (known as a balance transfer) may have a different APR than new purchases.
• Cash advance APR. Money you take out as a cash advance may also have its own APR, and it’s usually higher than the purchase APR.
• Introductory APR. To entice new cardholders, credit card issuers often offer 0 percent APRs on purchases, balance transfers or both for a limited time.
• Penalty APR. This can kick in after you fail to make payments for a certain period of time, usually around 60 days. At this point, your regular purchase APR will be replaced with the higher penalty APR, and it will typically apply to your existing and future balances for at least six months.

What to know about purchase APRs

As noted above, a purchase APR dictates how much interest you’ll be charged should you fail to pay off a purchase and carry a balance from month to month.

APRs are usually variable, meaning your purchase APR can shift up or down depending on the U.S. prime interest rate. It’s possible, but unusual, to have a fixed APR, which means it’s not affected by the prime rate.

It’s also important to note that you can, in fact, lose your lower purchase APR should you miss your monthly minimum payment for 60 days or longer, which could lead to your issuer charging you a penalty APR. To avoid this scenario, always be sure to make your minimum credit card payment on time.

How to find your current purchase APR

There are two ways to find your current purchase APR:

• Read your monthly credit card statement. Your current purchase APR can be found in the section labeled “Interest Charge Calculation” on your monthly credit card statement.
• Check your online account or app. You can also find your purchase APR by logging in to your credit card account and reviewing your credit card details. You can even use your online account to pull up your most recent credit card statement.

If your credit card is currently offering a promotional or introductory APR, your statement will 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. Learning how to read your credit card statement will help in this process.

How much can you save with an introductory purchase APR?

Some credit cards offer introductory APRs that are lower than the regular purchase APR. In many cases, these credit cards will offer zero interest for a specific period of time — often for up to 12 to 21 months.

Let’s go back to the example above. If you make a $3,000 purchase on a credit card with an 18-month 0 percent intro APR offer, those same $200 monthly payments will knock out your debt in 15 months. This means you won’t pay any interest on that balance, since you’ll have your balance paid off in full before your introductory APR period expires.

The best 0 percent APR credit cards can help you pay down any balances you charge (or transfer) to the credit card before the 0 percent introductory rate expires. When your introductory 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.

The bottom line

A purchase APR is the interest rate that applies to purchases you make with a credit card. Other transactions, like cash advances and balance transfers, may have different APRs.

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 introductory rate expires. If you want to know your current purchase APR, check your credit card statement or log in to your account.