If you have good or excellent credit, then you can feel confident that companies are offering you the best interest rate credit card they have. You have a solid credit history and companies want you to spend their money. However, if you have average credit, then it might be hard to determine what a “good” interest rate is. What makes a good interest rate varies from person to person. Learn more about credit card APR to help you determine if your card has a good rate.
Average APR
The interest rates on credit cards vary greatly. Some have APRs as low as 13 percent and others as high as 25 percent or more. The Federal Reserve calculates the average APR based on the rates charged for all interest-bearing accounts. For 2018, the average APR for credit cards is 15.32 percent. That does not mean that you should expect to find several credit card offers with interest around 15.32 percent. It just means that is the average that people are currently paying.
If you are looking for the lowest interest rate, check with credit unions over major banks. These APRs tend to be lower at an average of 11.61 percent, according to NerdWallet.
What Affects APR?
The interest rate for your credit card is dependent on a number of factors, including your credit score and the type of credit card you have or apply for. Low APRs are typically reserved for people with good to excellent credit (a credit score over 690). If you have a low or fair credit score, then you can expect to have a higher APR. Additionally, credit cards with perks and rewards also tend to have higher interest rates. If you actively work to lower your credit score, you may qualify for credit cards with lower interest rates in the future.
APR Based on Credit Score
Use your credit score as a guide to determine the best interest rate for you. It will help you be realistic in what to expect when applying for credit cards. Use these ranges from The Motley Fool as a guide: Fair to bad credit: Interest rates at or below 25 percent Little to no credit or students: 14.74 to 20 percent Good credit (670-739): Below 15 percent Excellent credit (above 740): 13.99 percent to 17.09 percent
Regular APR
Regular APR is the interest rate you should expect to pay once all of the promotional offers have expired. If you carry a balance from one month to the next, you will be charged this rate on your balance. If you plan to pay off your balance each month, then this rate won’t affect you much. Paying your balance off is a great way to maximize your rewards without having to pay it all back in interest. You will see a range of rates when applying, but your actual APR will be determined by the credit card issuer once you are approved.
Introductory and Promotional APR
If you are looking for a new credit card and plan to make a large purchase or transfer a balance from another card, then the interest rate on a line of credit is a major factor to consider. The best interest rate in these instances is zero percent, at least for the introductory or promotional period. There are dozens of cards that do not charge interest for a year or more. This is helpful for paying down large balances without forking out extra cash for interest. Just be sure to read the terms and pay off the balance before the promotional period ends.
Cash Advance APR
Credit card interest rates for cash advances are often higher than your regular interest rate. Cash advances also accrue interest the moment you make a withdrawal, so there isn’t a grace period even if you pay it off before the end of the billing cycle. Be sure to check the fine print regarding cash advances and avoid them unless it is an extreme emergency.
Penalty APR
If you make a late payment on your credit card, not only will you be slapped with a late fee, but your credit card company will also hike up your interest rate. Read the terms and conditions of your credit card and make sure to make all of your payments on time.
The “best” interest rate is relative. For obvious reason, the lower the APR the better. However, what is good for one person may not be the best for another. If you are interested in racking up rewards and paying off your balance each month, an APR of 18 percent is good. If you are carrying a balance from one month to the next, that APR is a bit high. The bottom line is that you have to find the credit card that works for your spending habits and financial situation.
