When shopping for a credit card, it is important to understand the annual percentage rate (APR) to find the best deal for your situation. If you pay off your bill every month, a no fee and moderate APR plan may be best. However, if you take out cash advances, you will want a low APR on that feature.
Each credit card has several different APRs. At the minimum they will have a rate for purchases, cash advances, and transfers. Typically, cash advances will carry a higher rate than for purchases or transfers. Transfers usually carry low rates. Sometimes you can even find an APR of 0% for an introductory period.
To entice you to open an account, credit card companies offer introductory and delayed APRs. An introductory rate lasts for a certain period, usually six months to a year. Delayed APRs charge no interest until a certain month.
Some cards also offer tiered rates, which keeps rates low for those that carry a small balance. For example, a card might offer 15% on balances between $1 – $1000 and 18% on balances over $1000.
Credit card companies also have penalty APRs. These apply when a payment is late, as outlined by the card’s terms.
Fixed Versus Variable APRs
A fixed rate APR doesn’t change. Usually these types of cards have an annual fee with them. But they usually offer lower rates with some security, making them attractive to those who carry large balances. It is important to remember that even fixed rates can change, but the credit card company has to give you notice.
A variable rate APR flexes with the index they are tied to, typically the prime or T-bill rate. Variable rate APRs are not the same as an introductory or delayed APR.
Picking The Right Card
Research all the APRs when you are looking for a good credit card. Know your credit habits, and pick the card with the rates that will give you the best deal.
You can even open multiple accounts, using them for different credit purposes. For example, you can use one card for cash advances but another for purchases.