Understanding Purchase APR: Everything You Need to Know
6 MIN READ
Published August 28, 2023 | Updated September 11, 2023
All credit cards come with their own terms, such as the annual percentage rate or APR. There may be several types of APR attached to your credit card, and purchase APR is the most important. This interest rate represents how much interest will be charged on purchases if you don't pay off your balance each month.
Understanding Purchase APR: A Comprehensive Guide
An annual percentage rate or APR is a percentage indicating the interest rate you’ll pay on a loan each year, for example, on a personal loan, mortgage, or car loan.
APR also applies to credit cards. Every time you swipe your card, you're borrowing money. The credit card issuer pays for your purchases, and you’ll need to pay them back, along with what’s known as the purchase APR on the money you borrowed.
Read on to learn more about what purchase APR is, how it works, and how to manage it so you can avoid accumulating a lot of credit card debt.
What Is Purchase APR?
Purchase APR is the interest rate applied to credit card purchases annually. Whenever you make purchases using your credit card and do not pay off the balance at the end of the month, this interest rate applies to your balance.
Purchase APR affects only those who carry balances month to month. For example, if you make a purchase of $500 with your credit card and pay off $300 before the due date, the remaining balance will be $200. If your credit card has a purchase APR of 20%, your balance will grow to $245 in 12 months if you only make the minimum payment each month.
Difference Between Purchase APR and Other Types of APR
Purchase APR is different from other types of APRs that your credit card company may charge you. All the APRs associated with your credit card are listed on the card’s terms and conditions. Your credit card’s ongoing purchase APR is what applies to your outstanding balance on an ongoing basis, but here are a few other types of APRs to know about:
- Balance Transfer APR: A credit card issuer may offer you a special balance transfer APR when you move balances from your existing cards to your new credit card. Oftentimes this can be as low as 0%. The introductory rate on balance transfer credit cards will expire after the specified time and will revert back to the card’s regular APR.
- Penalty APR: If you don’t pay your credit card bill on time or miss monthly payments, the credit card company may charge a penalty APR. If you have a balance transfer APR and pay your bill late, the special rate can also end prematurely.
- Cash Advance: When you withdraw cash through your credit line on the card, the amount you borrow will be subject to a cash advance APR. This is typically higher than the purchase APR, and there is no grace period. Interest starts accruing as soon as you take out a cash advance.
Examples of Credit Cards With Low Purchase APR
A good credit card purchase APR can be any rate at the national average or below it. Currently, the national average APR is 20.93%. Here are a few examples of low-APR credit cards:
Whether you’re looking for a low APR card for credit card consolidation or to avoid paying high interest rates, always check your credit score and compare APR offers to find the best credit cards. Don’t forget to also compare annual fees and other applicable charges.
What Is Current Purchase APR?
Your current purchase APR is the rate you're currently paying on your credit card purchases. Credit card companies are legally required to disclose each credit card’s purchase APR. You can find this information on the credit card company’s website, in your monthly statements, as well as on your cardholder agreement document.
The agreement will have a Schumer box, which is a chart that provides information about the interest rates and fees associated with the card. The purchase APR is usually the first row in this box, which can be a fixed number, like 21.90%, or a range, like 18.99%-27.99%, if your card has a variable APR.
What Is Regular Purchase APR?
Regular purchase APR is another way of referring to purchase APR. The interest rate applies to your purchases after the introductory APR ends. If you fail to pay your bills on time, the credit card issuer may charge you a higher default APR.
Fixed Vs. Variable Credit Card Interest Rates
You may have heard of terms like fixed and variable when describing credit card APRs. Let’s talk about what these mean and how they impact you.
Fixed Purchase APR
A fixed APR does not fluctuate and remains the same. However, much like the relationship between APY and interest rates, this does not mean that the interest rate will never change. Your credit card company can charge you a higher penalty APR if you fail to make payments. A fixed interest rate means that the issuer will lock your APR, and your rate will not change based on the prime rate.
Variable Purchase APR
Variable purchase APR changes according to the fluctuations in the prime rate. Most credit card APRs are variable. The prime rate can change due to fluctuations in the Federal Funds Rate. If the prime rate increases, your variable APR will go up.
What Is High Purchase APR?
A high purchase APR is anything significantly above the national average. If you have bad credit, It’s likely that card companies will assign you a higher purchase APR.
Credit card companies can charge any purchase APR they want, but they’re required to state the card’s interest rate in their terms and conditions. Most of these credit cards target borrowers with low FICO scores and those who want to build their creditworthiness.
Here are a few credit cards that charge a high purchase APR:
How To Manage or Reduce Purchase APR on an Existing Credit Card
High purchase APRs make it difficult to get out of credit card debt. The interest rate you qualify for will depend on a number of factors, such as the prime rate, your credit score, credit history, and other factors. Fortunately, there are still a few things you can do to manage or reduce your purchase APR:
- Clear your balance at the end of each month to avoid having to pay a purchase APR.
- Pay off your outstanding balance as soon as possible to lower interest charges.
- Pay your credit card bills on time to avoid late payment fees and penalty APRs.
- Improve your credit score by keeping your credit utilization low since higher credit scores will allow you to qualify for lower APRs.
- Consider getting a card with an introductory 0% APR or a credit card consolidation loan and transfer your balances so you can save money in interest charges.
- Try to pay off the entire balance before the end of the promotional period to avoid paying interest on a 0% APR card.
- If you’ve built up a lot of debt, maxed out your credit limit, and are unable to pay it off, consider debt settlement to avoid accumulating more fees and penalties.
The Bottom Line
Knowing what purchase APR is will allow you to compare different credit cards. You’ll be able to judge if a particular credit card is right for you. If you expect to carry forward balances on your card frequently, it’s important to get the lowest possible purchase APR. If you always pay off your entire balance in full each month, the purchase APRs may not matter as much. Instead, focus on other benefits that may mean more to you.
Most importantly, knowing how to stay out of credit card debt is crucial. If you find it challenging to clear off credit card balances or have maxed out your cards, TurboDebt can help you regain control. Our team will review your financial situation and offer you a personalized debt relief option based on your individual needs. Get in touch with us for a free consultation today.