When looking for the best credit card offers, a good place to start is the special bonuses, promotional rates, and rewards offered. However, the most essential feature to look for is the APR, especially if you have existing credit card debt.
According to Experian, one of the three major credit-reporting agencies, the average credit card balance per consumer was $5,910 in 2022, a 13.2% increase from 2021. The rise was primarily driven by an increase in the Fed’s key interest rate from a low of 0.25% at the start of March 2022 to the current level of 5.4%, the highest it has been in the past 22 years.
The Steep Rise in Average Credit Card APRs
A Fed rate rise often translates to an increase in credit card APR. As of early 2024, the average credit rate is 24.25%. Consequently, finding the lowest APR possible is crucial to ensure you can pay off your debt quickly.
One of the fastest ways to do that is by using online comparison tools. They can help you save a substantial amount over the long run. Besides knowing a card’s overall APR, it is essential to understand the various categories of credit card APRs.
Different Types of Credit Card APRs
Different transaction types often have different APRs. Purchase APR is the one that most customers focus on. It is the amount of interest charged on any assets purchased using a credit card, for instance, credit card purchases from online stores.
However, there are other APRs you should know about:
Balance Transfer APR
Some credit cards offer an introductory APR when users transfer their credit card debt from an existing card. The promotional offer can allow you to pay off or reduce your credit card card at a lower rate. Sometimes, it is as low as 0%. Once the offer window closes, an ongoing APR applies for which you pay interest.
Cash Advance APR
If you make ATM cash withdrawals using a credit card, it is a cash advance against your credit line. The cash advance APR is typically much higher, up to 29.99% or more than the usual APR, which can average 24% or higher. Credit card users should be aware of this risk.
Penalty APR
The penalty APR is typically the highest APR on your agreement. It is often an increase in your regular APR when you miss a payment. However, this APR is avoidable if you take specific actions.
The easiest way to avoid it is by making payments on time. A penalty APR typically lasts six months or longer if you continue being late. By law, credit card companies must revert to the regular APR on your outstanding balance if you make consecutive timely payments for six months. However, they can maintain the penalty APR for all future purchases.
Introductory APR
Card firms offer a 0% interest-free introductory offer for new customers for around six to eighteen months to attract new customers. This initial price comes into effect for all purchases and transfers. When the offer ends, the regular rate kicks in.
Understanding which APR will apply to each transaction is crucial before deciding on a credit card. That ensures that there will be no costly surprises in the future based on your usage habits. The purchase APR is what most people focus on. However, all other APRs are equally as important.
Strategies for Finding Low-Interest Rate Credit Cards
You have several options when trying to secure more favorable interest rates, including:
Apply For Cards From Credit Unions
Credit union cards typically offer lower interest rates than big banks, albeit with some membership requirements. For example, Andrews Federal Credit Union’s rewards card has rates starting as low as 10.99%.
Seek Out Introductory Rate Offers
Most credit cards offer a 0% APR on purchases and balance transfers for the first 6-21 months. This allows temporary interest-free financing. Just be sure to pay off balances before rates rise.
Improve Your Credit Score
Generally, better credit equals better rates; excellent credit maximizes the chances of getting lower rates.
Compare Similar Cards
Interest rates for a given card often span 10% or more based on creditworthiness. Shop around for your range.
Weigh the Pros and Cons of Fixed vs. Variable Rates
When looking for a credit card, you will have the option to pick between variable rates and fixed rates. Variable-rate cards offer a lower APR than fixed-rate cards. However, variable rates make it harder to make long-term borrowing decisions. Fixed rates, on the other hand, can leave you stuck with higher repayment rates than everyone else.
Read the Fineprint When Picking A Credit Card
Consumers have the power to find cards with more favorable rates, especially relative to today’s steep average APRs. Read disclosures carefully, factor in annual fees, and make timely payments to avoid penalty APRs. An extra percentage point or two in savings can add up over the long term.
When using credit cards, be mindful of the interest rates. While the purchase APR tends to get the most consumer attention since it applies broadly to spending, each type of credit card APR serves a specific function.
Being an informed consumer means understanding how each of these rates works. Choose a credit card wisely based on the purchase rate and factors like balance transfer offers, cash advance fees, and penalty triggers. Finding the right match for your habits and financial situation provides the best path to minimizing credit card interest over the long run.
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