What is APR?

If you’re in the market for a new credit card, you’re probably comparing quite a few numbers. One card’s reward rates might draw you, but another’s annual fee is enticing. As you’re shopping, though, there’s one number you definitely can’t overlook: the annual percentage rate, or APR.

The APR that comes with a credit card is basically how much it will cost you to carry a balance with that card. That’s because when you carry a balance, you’re borrowing money from that credit card provider. And loans come with interest rates. Your APR is the interest rate you’ll pay your credit card issuer when you don’t pay your balance in full each month.

Why APR is a big deal

APR matters because the higher this interest rate, the more it’s going to cost you to carry a balance with your credit card. 

Let’s look at an example. Say you’re carrying a balance of $1,000 on your card. U.S. News & World Report says the average APR in 2019 ranges from 17.03% to 24.05%.  Let’s assume you can score a 17% APR. Assuming you can put $100 a month towards your debt, it will take you eleven months to pay it off and you’ll have paid $86 in interest by the time you’re done.

But say you’re at the top of the range with an APR of 24%. Paying off that same $1,000 of debt will take you an extra month and you’ll pay $127 in interest. That’s almost 50% more in interest costs. 

Because this is the interest rate you’ll pay on any outstanding balances on your credit card, if you plan to carry a balance with your credit card, getting the lowest APR possible is key to keeping more money in your pocket. 

Want to get the lowest APR you can? Here are a few tips:

  • Shop around.
  • Build good credit. The better your credit score, the lower the APR you’ll get. Build credit by:
    • Paying your bills on time
    • Never using more than 30% of the credit available to you 
    • Keeping your old credit cards (especially those with low annual fees) open
  • Don’t apply for multiple credit cards at the same time.

Each time you apply for a credit card, the issuer checks your credit. Each credit inquiry of this type generally lowers your credit score by at least a few points.

The different types of APR

Now that you know APR’s meaning and how to get the lowest possible rate, it should be easy to find the right credit card, right? Not so fast. Your card doesn’t come with just one APR and not all APR is the same. Instead, you’ll come across different types of APR when you’re shopping for a credit card. Here’s a quick overview of what each means:

  • Variable APR: If you choose a card with a variable APR, your credit card provider can change your annual percentage rate as the economy’s index rate changes. And they generally don’t have to notify you in advance about your rate change, either.
  • Fixed APR: Generally, if you choose a card with a fixed APR, your APR won’t change as long as you have the card (assuming you make your payments on time and barring other specific circumstances; always read the fine print before choosing a credit card).
  • Introductory APR: To get your business, some credit card companies offer a lower APR for a set period of time. Remember, though, that once your introductory period has ended, your APR will go up. 
  • Cash Advance APR: If you need a cash advance from your credit card, you’ll likely pay a higher APR on that money than you would on normal purchases you make with your card. 
  • Balance Transfer APR: Some credit card companies offer a special (and usually lower) APR on balances you transfer to your new card from another credit card. Like the introductory APR, this is a way they entice you to choose their card.
  • Penalty APR: When you’re late on your payments, your credit card provider can put a higher penalty APR into effect.

Pro tip: APR is sometimes negotiable

The most important factor in determining your APR is you. And that’s not just because your credit score plays such a big role in the APRs credit card companies will offer you. You have the power to directly negotiate your APR.

How do you negotiate this rate? It’s pretty simple, actually. Call the issuer that provides the credit card you’re interested in or the credit card you have now and ask for it. People who use this tip regularly say you should expect to have to make a few calls and be willing to haggle. 

Credit card companies use APRs partially to make money, but also partially to cover their risk as they loan you money. If you can show them you’re a low-risk customer, you give yourself the greatest chance of negotiating a lower rate. And you can do this by doing a few things:

  • Maintain a good or excellent credit score
  • If you already have a card with the issuer, make at least six months of on-time payments
  • If you already have a card with the issuer,  pay off as much of your balance as possible

Position yourself well and your credit card issuer will want to earn or keep your business, so much so that they might be willing to offer you a lower APR.

Why APR might not matter to you

Now that you’re fully briefed on APR meaning, you’re probably shopping your credit card options and reviewing your existing cards. And you’ll likely notice a trend. Cards with better rewards generally have a higher APR. (That’s how credit card providers pay for those rewards.)

So does this mean you should steer clear of rewards cards? No. Remember, your APR only applies to the balance you carry on your card. If you pay your balance in full each month, your credit card issuer isn’t loaning you any money so they can’t charge an interest rate. If you know you’ll be able to pay off your card monthly, a high APR doesn’t need to concern you.

In a nutshell

In short, your APR is the interest rate your credit card issuer is going to charge you on any balance you carry. That means a lower APR will help you keep more money in your pocket when you carry a balance and as you pay it off. If you can score a low, fixed APR, you’ll be able to minimize the cost of borrowing money from your credit card issuer long-term. 

Your credit score is directly linked to the APR you’ll be offered, so if you want the lowest possible APR, work on building good credit. But don’t be afraid of rewards cards with high APRs, either. As long as you can pay your balance in full each month, you won’t ever need to worry about the APR associated with your card.

Kacie Goff

Personal finance writer and founder of Jot Content, a full-service content agency.

Kacie lives in Ventura, CA, with her husband and dingo-lookalike dog, Babou. When she’s not writing, you can find her practicing yoga, working in her garden or scoping out a new happy hour. Learn more at jotcontent.com.