Every credit card has certain terms and features you should be aware of — and purchase APR is one of the most important. The APR, which stands for annual percentage rate, is the amount of interest you will pay if you carry a balance.
While there are a few different types of APR, perhaps the most important is the purchase APR. Learn more about what it is, how it’s determined and how to qualify for a competitive rate.
What Is Purchase APR?
Purchase APR is a measure of how much interest you pay on a balance from purchases that you make, says Matthew Goldman, founder of Totavi, a fintech advisory service.
Though some cards have a single rate for all types of transactions, many have different APRs. The purchase APR applies every time you buy something from a merchant or service provider.
[Read: Best 0% APR Credit Cards.]
Why Purchase APR Matters
Because credit cards traditionally have a higher APR than other financial products, people often get caught in a cycle of debt once their balances become too large to manage.
“The reason that you pay interest at all is because you essentially have a loan from the credit card company. They don’t let you do that for free,” says Jordan Rippy, associate professor of practice and associate dean for faculty affairs at Johns Hopkins Carey Business School.
If you’re someone who keeps a balance from time to time, paying attention to the purchase APR is a good idea. The higher it is, the more your debt will cost you.
The good news is that there is a simple way to avoid paying purchase APRs. “In the United States, consumers are guaranteed a 21-day grace period (some cards may be longer) after a statement period closes to pay purchases in full to avoid paying interest,” says Goldman. “This means that if you pay your card bill in full each month and on time, you are not charged interest.”
[Read: Best Rewards Credit Cards.]
How to Find Your Credit Card Purchase APR
You can find a card’s purchase APR in a number of ways.
— On the card’s website. If the purchase APR is not explicitly stated on the card page, look in the footnotes or look for a pop-up link that says something like “rates and fees” or “terms and conditions.”
— On your paper statements. When viewing your monthly statement (whether by mail or online), you should see the purchase APR listed.
— By calling the credit issuer. If you are having trouble locating a card’s rate, just call and ask. If you aren’t a cardholder yet, you may be told a purchase APR range, and the specific rate you’re offered if you apply will be based on your creditworthiness.
What Is a Good Purchase APR?
A good purchase APR is on the lower end. Some cards also offer lower purchase APRs than others, so that can be an important point of comparison when shopping for a new card.
The average purchase APR for credit cards as of August 2023 was 21.19%. If you can find a card with a rate below that, consider it a good purchase APR.
If you regularly pay your bill in full, you may not even have to concern yourself with the purchase APR since you won’t have to pay it.
What Purchase APR Is Based on
“Credit card companies determine APR based on the current macroeconomic interest rate environment (many rates are built using the prime rate plus a markup), the type of card you have and your creditworthiness,” says Goldman.
In most cases, the lower your credit score, the higher your APR offers will be and the more interest you will pay. But Goldman also notes that certain types of credit cards inherently have higher APRs, such as store credit cards and rewards cards.
How Introductory APRs Work
Many cards offer introductory purchase APRs that are very low or even 0% for a certain period of time as an added benefit to new cardholders. Sometimes those periods can be long — as much as 18 to 22 months, says Rippy.
“If you have a large purchase coming that you know you will need time to pay off, it could be worth investigating whether you can qualify for one of these low introductory rate cards because it will give you a longer window to pay off the purchase without paying interest,” she says.
Once the introductory period is over, the regular purchase APR will take effect.
[Read: Best Starter Credit Cards.]
How to Get the Best APR Possible
Getting a competitive APR can take a bit of research, and your credit standing plays a big role. “Shop around to see what cards are offering the best APR given the credit score that you are bringing to the table,” says Rippy.
If your score is not where you want it to be, you can work to improve it and then over time, you may qualify for lower rates and better products. “Having good credit and paying your bill in full and on time are the best ways to qualify for a lower APR,” says Goldman.
The other thing you can do if you keep your accounts in good standing is see if the issuer will lower your rate. “You don’t get what you don’t ask for, so it is always possible to contact your card issuer and ask for a break on the APR,” says Goldman.
Look at the Big Picture When Comparing Cards
Most credit cards have relatively high purchase APRs, and some are higher than others. Therefore, the best thing you can do is aim to pay your bill in full each month. If you make that a habit, purchase APRs become moot and you can focus on comparing cards by the value and benefits that they offer instead.
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What Is a Purchase APR? originally appeared on usnews.com
