What is credit card APR? If you’re thinking about getting a credit card, chances are you have some questions about how it works. One of the main questions you might have on your mind is about the APR associated with credit cards.
There are multiple types of APR associated with credit cards. But, it may not be clear what exactly those APR types are. Thankfully, we are about to cover for you the 5 different kinds of credit card APR.
And if you are looking to apply for an online credit card, Max Cash® is here to help!
Purchase APR
The first type of APR we’ll be covering is purchase APR. Most types of APR only apply on specific purchases. But, purchase APR can apply to all the purchases you make using your card. As a result, it’s often referred to as your regular APR.
- Triggering Condition – The situation in which this type of APR comes into play is when you only pay a partial amount of your monthly bill and leave a balance on your card.
- Interest Rate – The interest rate percentage you’ll generally see will fall in the 14 to 25 percent range, depending on your card and credit score. Better credit scores typically get a lower percentage.
- How to Avoid – There’s a grace period of around three weeks, during which you can pay off your remaining balance. If you are unable to, you’ll start being charged interest on the leftover costs.
- Extra Notes- As is true of all interest charges, credit card APR costs compound on top of each other. This means that future interest charges will consider prior interest charges. That can cause your eventual charges to stack up on each other.
Balance Transfer APR
The next type of APR we’ll be covering is balance APR. This APR type only applies to specific charges in a specific situation, unlike with purchase APR.
- Triggering Condition-This type of APR comes into play when you’re trying to transfer the balance of a different type of loan onto your credit card.
- Interest Rate-The way this type of APR works is that, when transferring the remaining costs of your loan onto your credit card, any APR will be set to 0% for a pre-set number of months.
- How to Utilize- If you’re trying to finish up a home loan, you might want to move the last of the costs of your home loan onto your credit card. This allows you to pay the remainder of the loan off with a 0% interest rate over your grace period.
- Extra Notes-Be aware, that once you are past the specified grace period, you’ll be hit with the purchase APR rate. Having a large amount still stacked up on the card will result in a very sizable interest charge. There are also transfer fees you’ll need to be aware of, but those usually end up being 3% to 5%.
Introductory APR
This is a rather unique type of APR when it comes to credit cards, as it is the only type of APR that can be encountered immediately upon starting a new card.
- Triggering Conditions- Introductory APR activates when you open a new credit card that offers it as an option.
- Interest Rate- When you get a new credit card with introductory APR, for a set number of months (6 to 24) you’ll enjoy a 0% APR rate.
- How to Utilize-This type of APR allows new credit card users to get a fresh start or to make large purchases without having to deal with interest charges. These offers aren’t available through every company, and some are even only available via specific promotions.
- Extra Notes – Keep track of your free period length, for as soon as the last month is over, you’ll immediately be subject to any applicable types of interest.
Cash Advance APR
As you can probably tell from the name of this type of APR, the conditions for this type of APR are dependent on cash advances.
- Triggering Conditions-Cash advance APR occurs when you take out a cash advance. A cash advance is a process where you use your credit card to withdraw funds from an ATM.
- Interest Rate-To give you an idea of just how bad it is to get a cash advance, your interest rate will end up much higher than your normal purchase APR.
- How to Utilize/Avoid- Cash advances allow you to cover yourself in the case of a cash-only emergency, but it comes with a hefty price. Not only will you incur some fees for using your credit card, but you’ll also end up incurring a much higher APR rate than usual.
- Extra Notes- To make matters worse, this APR begins applying immediately, meaning that if you don’t pay it off easily, you’ll end up with a rapidly compounding cost. It’s best to only use a cash advance in cases of extreme need. Avoidance is generally the best idea.
Penalty APR
This is another negative type of APR and one that’s probably more likely for the average person to run across. Unlike the cash advance APR, this type of APR is one you can run into by accident. This type of APR has two stages, both of which we’ll cover here.
- Triggering Conditions. Penalty APR occurs when you completely miss a payment.
- Interest Rate. At first, you’ll incur a greatly-increased interest rate upon only your new purchases past the date on which you missed your payment. However, after 60 days, the interest rate will increase further. It will end up applying to all of your purchases, even the ones that previously existed on your card.
- How to Avoid- Make sure you pay your bills on time, even if it is only partially. Purchase APR is vastly preferable to penalty APR.
- Extra Notes. It also ends up being an issue you’ll be dealing with for a while. If you end up missing, the increased rate can continue to stick around for up to six months. Pay your bills on time, and the penalty APR will never hit you.
Now that you know about all these different types of credit card APRs that can occur, you’ll be ready for when you make the decision to get yourself a new one.
Now you’re ready to apply for a credit card! So why not get started today? Click here to find out more about credit cards through Max Cash and see how you can get connected today.
