Posted by: Adam McCann

Credit card interest rates tell you how much it will cost to borrow money from a credit card company, by carrying a balance from month to month. Credit card issuers indicate that cost by displaying credit card interest rates as an annualized percentage of your balance, also known as an Annual Percentage Rate (APR). For example, if your interest rate is 20% and you carry a $500 balance, you would owe roughly $100 in interest after a year.

The average credit card offer currently has an 19.05% APR, according to WalletHub’s latest Credit Card Landscape Report. And the average rate on existing credit card accounts is 13.08%.

The good news is that credit card interest rates won’t apply if you pay your full statement balance by the due date each billing period. The bad news is there are several types of credit card interest rates to contend with. And they all have the potential to be quite expensive.

Here are the different types of credit card interest rates:

1. Purchase APR: The interest rate on things you buy with a credit card that applies when you don’t pay your statement balance in full every billing period.
2. Balance Transfer APR: The interest rate you owe on balances you move from other credit cards or loans to your card. Typically, you get a low rate (even 0%) for a certain number of months, and then switch over to the regular APR.
3. Introductory APR: This is a temporary promotional rate that some credit cards offer to new applicants for a certain period of time after account opening. It is lower than the normal APR, often 0%. The average credit card with a 0% introductory APR on purchases gives you about 10 months without interest. Balance transfer intro APRs last 12 months on average.
4. Cash Advance APR: Withdrawing money from an ATM or bank branch using your credit card triggers this rate. The average credit card cash advance APR is 21.02%.
5. Penalty APR: This rate may apply after you miss a due date. And whether it applies to future purchases or an existing balance, too, depends on how far behind you get. The average penalty APR on a credit card is 26.18%.

Below, you can find more detailed average credit card interest rates, along with additional information about how credit card interest works and how to avoid it.

Current Credit Card Interest Rates

Category	Average Purchase APR
Excellent Credit	14.19%
Good Credit	19.88%
Fair Credit	22.41%
Secured Credit Cards	19.17%
Student Credit Cards	17.63%
Business Credit Cards	17.64%
Store Credit Cards	25.48%
All New Offers	19.05%
All Existing Accounts	13.08%

Source: WalletHub’s 2018 Credit Card Landscape Report Credit Card Interest Rates Compared

If you look at your credit card’s terms and conditions, you’ll run into several types of interest rates. It’s important to understand how each works and to which balances it applies. That way, none of the payments you owe on your card will be a surprise when they’re due. Below you’ll find a comparison of all the interest rates you need to know, including their current averages.

Purchase APR

The purchase APR is the most common interest rate you’ll deal with. It applies to all the purchases you make using your credit card. You may also hear it called the “regular APR.” But you’ll never actually owe any interest as long as you always pay your balance in full by your due date. When your credit card statement closes, there is typically a grace period of about 21 days before your due date. As long as you pay within this period, you won’t owe a cent of interest.

But if you do carry a balance, you’ll owe interest at your purchase APR divided by 365 every day. And like all credit card interest, it compounds daily. That means that each day you owe interest both on the original balance and on any past interest you’ve accrued.

Balance Transfer APR

A balance transfer is when you move a debt from one creditor to another. For example, you might move the balance of your auto loan onto a credit card. Many cards will give you an introductory rate, usually 0%, for a certain number of months. When you transfer your balance to a card with a 0% APR, you get time to pay down your existing debt without having new interest build up. You’ll typically owe a transfer fee of 3%-5%, though.

Introductory APR

An introductory APR is a promotional rate an issuer gives new customers on purchases or balance transfers. This rate is usually 0% and it lasts for a certain number of months, usually 6-24. It’ll always be lower than your regular APR. It can help you finance big-ticket purchases and avoid racking up interest on an existing balance.

Once an introductory period expires, you’ll start owing interest on any remaining balance right away at your regular APR.

Cash Advance APR

When you make a cash advance, you use your credit card to withdraw money from an ATM or bank branch. You’ll need a PIN in order to do so. However, cash advances are usually a bad idea unless you’re in an emergency. That’s because the cash advance APR is generally higher than your normal APR and over 20%. On top of that, you’ll be charged a fee and there’s no grace period for repayment. That means you’ll start accruing interest at your cash advance APR immediately, compounding every day.

Penalty APR

Another undesirable interest rate is the penalty APR or default APR. This can take effect when you’ve missed at least one payment. Your issuer will apply this rate to new purchases first (with a 45-day notice). But once you’re at least 60 days delinquent, meaning you’ve missed two payments, the issuer can then apply it to all existing balances.

The penalty APR is always higher than your regular APR if it exists, but some cards don’t have a penalty rate. And it’s hard to get your original rate back. It’ll take six months of on-time payments before your issuer is required to revert the rate on existing balances. But they are allowed to keep the rate for new purchases unchanged.

How Credit Card Interest Rates Work

Several things can cause an interest rate to apply to your balance. For example, you might carry a balance between months or take out a cash advance. Once you start paying interest, it will start accruing daily. The rate per day is the APR divided by 365. You then multiply that by your balance to find the amount of interest you owe that day.

But it’s not quite that simple. All credit card interest rates compound daily. That means that each day you owe interest both on your original balance and on any other interest you’ve already accrued. So the amount of interest you owe each day will slowly increase. That’s why it’s vital to always make a plan to pay off your debt.

When Credit Card Interest Rates Can Change

There are four main cases in which your credit card interest rate might change. You have control over some of them, but others are totally out of your hands. Here are the cases in which they can change:

1. Your introductory rate expires. It’s great to get a low introductory APR, especially if it’s 0%. But these rates only last a certain number of months, usually 6-18, before the regular APR kicks in.
2. You have a variable rate. This means your rate is tied to an index, usually the prime rate that banks use to lend to their most creditworthy customers. As the market fluctuates and that rate changes, so will your card’s interest rate. You’ll know your card’s rate is variable if you see a (V) next to it. Most cards have variable rates, but some have fixed rates not tied to an index.
3. You trigger the penalty APR. The penalty APR is higher than your regular APR and can be applied when you miss a payment. It can apply to future purchases afterYou can only regain your regular APR on existing balances by paying on time for six months. Your issuer may or may not ever lower your APR on new purchases.
4. Your issuer changes the rate. A credit card company can change your interest rate for future purchases at pretty much any time, for pretty much any reason. They’re required by law to give you 45-days’ notice, though.

There’s a lot to learn about credit card interest rates, but WalletHub is here to help. You can check out our APR guide to learn more about how interest works. Consider reading up on what a good APR is as well.

Image: Trukhachev Kirill / Shutterstock

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