What Is Variable APR?

You’ve probably noticed the term “variable APR” on your credit card agreement or on credit card offers you’ve received online and in the mail. But what exactly is a variable annual percentage rate?

Variable APR means that the annual percentage rate, your interest stated as a yearly rate, can change over time. Most credit cards have variable rates.

[Read: Best Low-Interest Credit Cards.]

How Do Variable APRs Change?

Although your variable interest rate can change, your credit card issuer doesn’t necessarily have to notify you. You won’t know if your rate has changed unless you pay close attention to your billing statement. Here are two reasons why your APR may fluctuate.

The prime rate changed. Typically, your credit card’s variable APR consists of a base rate and a margin that is determined by your credit history. A change in the base rate often triggers a change in overall APR for cards with a variable rate.

“Variable APRs anchor to a widely followed benchmark, like … the federal funds rate or some other interest rate measure,” says Riley Adams, certified public accountant and founder of personal finance blog WealthUp. Most often, the base rate used for credit cards is the prime rate. The prime rate is the lowest rate banks charge their best customers to borrow money.

It may vary from bank to bank, but a consensus prime rate can be found in The Wall Street Journal. Usually, the prime rate is the federal funds rate, plus roughly 3%. The Federal Reserve sets the federal funds rate, the interest rate banks charge each other for overnight loans. If you hear that the Federal Reserve may raise rates, you should prepare for a higher variable APR and higher interest charges on your monthly credit card statement.

How you use your card. Your card may have more than one variable APR based on how you use it. Some cards have different APRs for purchases, balance transfers, cash advances and penalties. These rates are listed separately on your terms and conditions.

[Read: Best Rewards Credit Cards.]

When Are Other Times Your Interest Rate Can Change?

In addition to base rate tweaks, other situations can cause your card’s interest rate to change. Some of these include:

A promotional rate ending. Say you signed up for a credit card with a 12-month 0% introductory rate. Your interest rate will increase to the regular APR after the promotional period.

A periodic review. Issuers can review your financial status and increase your APR if, for example, your credit score has dropped.

A missed payment. A penalty APR may apply if your payment is at least 60 days late.

At the issuer’s discretion. Issuers can raise your interest rates for no reason. But they can only do so after you’ve had the card for at least a year and must give you at least 45 days’ notice.

[Read: Best Balance Transfer Credit Cards.]

What Should You Do if Your Variable APR Increases?

Shop around

If your APR is increasing more than you’re comfortable with, shop around for a lower APR. “If your credit scores are good, you may have lower-cost options,” says Gerri Detweiler, former education director for Nav, a business credit and financing resource. But if your APR is going up because the base rate is increasing, chances are that other credit card APRs are increasing as well. Still, you may be able to secure a better rate as a new customer.

Other credit cards may offer lower APRs overall by using a lower rate premium, even if they use the same base interest rate. In particular, you can look for credit cards that focus on providing a low APR, possibly forgoing other features, such as rewards.

Transfer your balance

If you’re carrying a balance on a credit card with a rising APR, you might want to consider transferring the balance to another card. “You may already have a card that will welcome the opportunity to transfer that balance at a lower rate,” Detweiler says.

Call the issuers of your other credit cards, and ask what APRs and fees apply to transfer your balance. Do not contact the issuer of the card with the balance you want to transfer. A bank will not allow you to transfer a balance between two cards it has issued.

You can shop for new balance transfer credit cards to find the best deal, too. These offers may waive balance transfer fees or provide a 0% introductory APR on balance transfers for as long as 21 months in some cases.


You don’t always have to open a credit card or transfer a balance to secure a lower APR, though. If you’re a good customer, you may be able to negotiate a lower rate with your credit card company, Detweiler says. All you may need to do is call your credit card issuer and ask for a lower rate.

For the best chance of success, gather offers of lower interest rates from competing credit cards to quote to the customer service representative. You’ll also need a history of at least six to 12 months of on-time card payments. This plan may not work if you’re struggling financially.

“If you tell your issuer that you’re having financial problems, it may freeze your account or lower your credit limit,” Detweiler says.

Instead, focus on asking for a lower interest rate based on your relationship with the company and other positive factors, such as your on-time payment record.

More from U.S. News

What Happens When You Stop Making Credit Card Payments?

What Is the Grace Period on a Credit Card?

5 Credit Card Management Apps to Stay on Top of Payments

What Is Variable APR? originally appeared on usnews.com

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