What Is a Good Apr for a Credit Card? How Can you Get it?
What Is a Good Apr for a Credit Card? One of the most critical numbers to remember when you’re looking for a new credit card is the APR. A good Deal for a credit card is one below the current average interest rate, but only borrowers with outstanding credit would have the lowest interest rates available.
The average interest rate for U.S. credit cards has been about 14 percent to 15 percent APR since early 2018, according to the Federal Reserve. Let’s take a closer look at the APRs for credit cards and how to rank one big.
Why does knowing the average APR matter?
When looking at new credit card offers, knowing the average APR can help you compare interest rates to get an idea of the best rates available. Let’s dig into what APR means in practical terms and then we’ll highlight some ways you can shop around for a credit card with a competitive APR.
What is an APR?
An APR, or annual percentage rate, of a credit card, is the interest rate applied to balances that you carry beyond the grace period. The lower the APR of your card, the less interest you pay on your credit card balance.
Even if you’re planning to pay your statement balance in full each month and avoid interest charges, knowing what’s considered a good credit card APR helps you understand whether you’re getting a good deal or whether you need to switch to a new credit card to save money on purchases financed.
Each credit card has an advertised APR for purchases, but there are also other types of APRs. You’ll need to check the fine print on the card terms and conditions to find APR details. Types of APRs include:
Promotional APR: A promotional APR, also known as an introductory APR, applies for only a period of time after you open the account. These special APRs, often 0%, typically last anywhere from six to 18 months and may apply to balance transfers or purchases.
Purchase APR: A purchase APR is the interest rate that applies to the regular purchases you make with your card. This is the number that’s typically referenced when talking about the APR for the card. The purchase APR applies only if you carry a balance on the card.
Cash advance APR: A cash advance APRis a higher APR that kicks in if you use your credit card at a bank or ATM, or use a “convenience check” sent by your card issuer, to get your hands on cash in a pinch.
Penalty APR: A penalty APR is a much higher interest rate that the card issuer charges when you become delinquent on your account. Penalty APRs often reach 30% or higher.
The difference between APR and interest rate
APR and interest rate are frequently used interchangeably and are not the same. Both tell you how much you’re paying for borrowed money, but APR contains extra fees that you may have to pay upfront.
Usually, you don’t have any extra costs for a credit card (other than an annual fee that may come with some rewards cards). For a credit card the APR is also the same as the interest rate.
However, the lenders charge a variety of upfront fees with other types of credit accounts, such as a mortgage. This may include an origination fee, discount points and some cost of closing. The APR on a mortgage or car loan helps you to make a comparison shopping apples-to-apples. Your monthly loan payment is based solely on how much and interest rate you borrow, not on the APR.
How to get a good APR
The best way to get a good APR is to practice good credit habits. A better credit score gives you a better interest rate. Here are some actions you can take right now to improve your score:
Make all of your credit card payments on time, every time. Payment history makes up 35 percent of your credit score, so make sure you’re maintaining a good one.
Avoid maxing out your credit cards. Keeping your balances low will improve your credit utilization ratio and help boost your score.
Pay off as many of your outstanding balances as possible. Work towards becoming debt-free.
As your credit score improves, look for credit cards with low interest rates. You can also contact your current credit card issuers and ask them to lower the interest rates on your credit cards. Credit card issuers don’t want to lose cardholders, so learn how to negotiate lower interest rates. In some cases, all you have to do is ask.
Ultimately, paying your balance in full each month is the best way to use a credit card, so you never pay interest but get to enjoy all the benefits that the card can offer. However, if you’re carrying a balance, a low-interest loan may be a fantastic option to help you pay off debt or fund a big buy.
No matter which card you choose, remember that a low APR credit card is an opportunity to pay down your debt quickly by putting more of your monthly payment to the principal. Use that introductory period and low rates to make financial advances on terms that work for you.