Is Your Credit Card APR Too High? It Depends

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Unless you plan to pay off your credit card bill in full every month, the APR is one of the most important considerations when selecting a card. But what is a high APR for credit cards? Let’s take a look.

What Credit Card Companies Don’t Want You to Know

Ideally, credit card users would pay their bill in full each month, which makes the APR irrelevant because of the grace period offered. But credit card statistics show that won’t be the case for most Americans. On average, 54% of adults carry a balance on their card. It also isn’t good for credit card companies, which hauled in $176 billion in 2020, despite pandemic-related spending cutbacks.

The best credit card APR is obviously 0%, when you pay no interest at all on the purchases you make. This means that whatever price you originally paid for something is the same price you pay when your card’s billing cycle is up, and whatever you charge is basically a free short-term loan.

Any 0% APR offer will only ever be temporary, and only those with the best credit scores will qualify.

What is a Good Credit Card APR?

Depending on your credit score, a good APR would be less than 14% APR. Some local banks and credit unions even offer cards with APRs lower than 10% for customers with excellent credit. Rates on the lower end are tougher to get now than they were earlier this year, due to multiple interest rate hikes by the Federal Reserve.

The national average now hovers around 18% after the most recent rate increase, and most borrowers won’t qualify for the lowest rates.

Signs Your APR is Too High

If you have a bad credit score, you’ll usually end up paying the higher end of the range, which can be as high as 36% APR. However, even though this is high, it’s still considerably lower than what you’d pay for a payday loan or title loan, which often reach 300% or more in some states.

Once your APR starts to reach the 22% to 28% range, it’s getting too high. Of course, depending on your credit score, this might be all you can qualify for to start.

Check your credit score. If your score has improved since you applied for the card, you may now be eligible for a lower rate. If you have a good to excellent score and your rate is still on the higher end, now is a good time to start looking for a card with lower rates.

Top Low-APR Credit Card Offers

These credit cards have some of the more favorable APR offers on the market and no annual fee. If your credit score is good enough, there may be better options for cards that offer travel rewards or special perks that are useful for your situation.

Best for No Penalty APR: BankAmericard Credit Card

The BankAmericard credit card features the following APR scorecard:

  • APR range: 14.24% to 24.24%, variable APR
  • Cash advance APR: 15.99% to 28.99% variable and 3% or 5% fee of the amount withdrawn, with a $10 minimum
  • Annual fee: $0
  • Introductory APR: 0% APR on purchases for 21 billing cycles and 0% intro APR on balance transfers for 21 billing cycles for any balance transfers made in the first 60 days
  • Regular APR: 14.24% to 24.24% after intro period ends
  • Rates and fees: 3% fee for all balance transfers, 3% foreign transaction fee
  • Special perks: No penalty APR if you miss a payment

Best for Matching Cash Back: Discover It Cash Back

The Discover It Cash Back card features: 

  • APR range: 14.24% to 25.24%, variable APR
  • Cash advance APR: 27.24% variable with a 5% fee
  • Annual fee: $0
  • Introductory APR: 0% intro APR for 15 months on all purchases and balance transfers
  • Regular APR: 14.24% to 25.24% after intro period ends
  • Rates and fees: 3% introductory fee for balance transfers and up to 5% in the future. No foreign transaction fee
  • Special perks: Discover will automatically match the cash back you’ve earned at the end of your first year

Best for Long Interest-Free Offer: Citi Diamond Preferred

The Citi Diamond Preferred credit card features the following rates:

  • APR range: 15.99% to 25.99%, variable APR
  • Cash advance APR: 25.24%, will vary based on prime rate
  • Annual fee: $0 
  • Introductory APR: 0% intro APR for 21 months on balance transfers and 12 months on purchases
  • Regular APR: 15.99% to 25.99% after intro period ends
  • Rates and fees: 5% balance transfer fee
  • Special perks: One of the longest interest-free periods on the market

Best for Unlimited 2% Cash Back: Wells Fargo Active Cash

The Wells Fargo Active Cash card features:

  • APR range: 17.99%, 22.99%, or 27.99% variable APR
  • Cash advance APR: 26.24% to 27.49% with a 5% fee
  • Annual fee: $0
  • Introductory APR: 0% intro APR on all purchases for 15 months and 0% intro APR on balance transfers 15 months from account opening on qualifying balance transfers
  • Regular APR: 17.99%, 22.99%, or 27.99% after intro period ends
  • Rates and fees: 5% balance transfer fee, 3% foreign transaction fee
  • Special perks: Earn a $200 cash rewards bonus after spending $1,000 in purchases in the first 3 months and earn unlimited 2% cash rewards on purchases

Best for $200 Bonus: Bank of America Unlimited Cash Rewards

The Bank of America Unlimited Cash Rewards card has some of the best rewards available with a low-APR card.

  • APR range: 16.24% to 26.24% variable APR
  • Cash advance APR: 15.99% to 28.99% variable and 3% or 5% fee of the amount withdrawn, with a $10 minimum
  • Annual fee: $0
  • Introductory APR: Introductory APR for 18 billing cycles for purchases, and for any balance transfers made in the first 60 days.
  • Regular APR: 16.24% to 26.24% after intro period ends
  • Rates and fees: 3% balance transfer fee. 3% foreign transaction fee
  • Special perks: $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening. Earn unlimited 1.5% cash back on all purchases.

How is the Average Credit Card APR Determined?

In 2021, the average credit card APR was 19.2%, according to estimates from the Consumer Financial Protection Bureau (CFPB).

This is slightly higher than Federal Reserve estimates that indicate that the average rate was 15.13% as of May 2022.

Interest rates, usually referred to as annual percentage rates (or APRs), depend on many factors, including the prime rate, a fluctuating interest rate based on the federal funds rate set by the Federal Reserve. When the Federal Reserve increases interest rates, the prime rate increases and you pay more in credit card interest. As of September 2022, the prime rate is 6.25%. The latest Fed rate hike means the cost of carrying a balance on your credit card will be increasing within the next month or two, because most credit cards have variable rates.

Other Factors

Beyond the prime rate, these other factors determine what APR your credit card has:

  • Who is extending credit (For example, is it a credit card company, traditional financial institution, credit union or store)
  • The lender’s policies
  • The credit card’s benefits
  • Your employment status and income
  • Your credit score

READ MORE: What Credit Score Do You Start With?

Some Cards are Better than Others

Not all cards are created equal. Rewards cards and cards with more benefits and perks usually have higher APRs, or a higher annual fee.

And you may pay different APRs depending on the type of transaction. Purchases may have a different purchase APR than the rate charged for balance transfers and/or cash advances, even on the same card. Cash advances usually do not have a grace period, so interest will start to accrue immediately. And your APR could increase if you make a single late payment, so make sure to note your due dates or set up autopay. You’ll need to carefully read the card’s terms to make sure you understand what you’re paying.

READ MORE: Why Did My Credit Score Drop?

Want a Lower APR? Here’s What to Do

  • Explore credit union credit cards because they tend to have lower rates
  • Call your credit card issuer and try to negotiate a lower rate
  • Make sure you have the best possible credit score
  • Make all payments on time
  • Look for a bare-bones card
  • Apply for a new credit card with an introductory offer
  • If you need to make a large purchase, check to see if a retailer offers a “same as cash” option, then pay off the purchase during that introductory period. This basically makes your loan interest free

READ MORE: How Many Credit Cards are Too Many?

If You Regularly Carry a Balance

If you regularly carry a balance, it’s important to choose a card with the lowest overall rate possible. Even a small rate reduction can mean a large savings if you’re paying off your balance over a period of years.

READ MORE: 8 Ways to Consolidate your Credit Card Debt

If You Always Pay Your Card in Full

If you pay your balance in full each month and have excellent credit, look for a rewards credit card that best fits your needs, whether it’s cash back or travel perks. Paying in full basically eliminates your need to care about your credit card’s APR.

READ MORE: Which Credit Bureau, Report or Score is Most Accurate?

Other Credit Card Perks

  • Purchase protection
  • Discounts: American Express has Amex Offers, while Chase and Capital One offer discounts when you shop through their links.
  • Product warranty extensions
  • Cell phone insurance
  • More secure than cash
  • Cashback match
  • New user bonus: Some cards will offer bonuses ranging from $200 back after you charge $500 or up to 50,000 American Airlines AAdvantage miles (usually enough for one domestic round-trip flight) after you charge $2,500 in the first three months after opening the account

There are ways to use credit cards strategically to your advantage. To learn how to use the cards wisely, check out this video:

How Can I Find a Lower Interest Rate?

Look for a balance transfer credit card that offers a low introductory rate. Then maximize your monthly payments so you’re paying as much toward your balance as possible before the balance transfer APR expires.

The Importance of a Low APR: The Difference You’ll Pay in Interest

If you owe $2,000, here’s what your monthly payment would be if you’re paying it off over 18 months, depending on your card’s interest rate.

  • 0% introductory period: $111 per month
  • 10% APR: $121 ($144 in interest)
  • 16% APR: $126 ($232 in interest)
  • 22% APR: $132 ($320 in interest) 
  • 30% APR: $140 ($439 in interest)

As you can see, just a few percentage points can go a long way toward increasing monthly expenses.

Credit Card Debt Statistics

One surprising figure is that the total U.S. credit card debt as of the first quarter of 2022 is $1.103 trillion. This is larger than the GDP of many of the world’s economies. At an individual level, the average credit card debt is between $5525 and $8701 per household.

Explore more U.S. credit card statistics here.

The Bottom Line

High APRs on credit cards can significantly bog down your financial life if you aren’t careful. If you often carry a balance on your cards, choosing one with a low APR should be one of your top considerations before making a selection. 

Beyond the prime rate dictated by the Federal Reserve, you can try to get a low APR by making sure you have a good credit score, applying for a card with an introductory offer, and exploring your options at credit unions.

FAQs

How Is Your Credit Score Calculated?

Your FICO credit score is calculated by looking at several factors of your credit use, including your payment history (35%), the amount you owe (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
Your score is typically broken up into ranges that look like this:
800 – 850 – Exceptional 
740 – 800 – Very good
670 – 740 – Good
580 – 670 – Fair
300 – 580 – Poor

What is a Penalty APR?

This occurs when you violate the payment method you agreed upon with your creditor. It’s typically caused by a late payment, a returned payment because of insufficient funds or a closed account, or if you exceed your credit limit. These actions trigger a penalty APR, causing your interest rate to skyrocket.

What is a Grace Period?

A grace period is the amount of time between the end of your billing cycle and the date your payment is due. During this period, you won’t be charged interest as long as you pay your balance in full by the due date.

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