A good APR usually sits at or below the national average, currently above 20%. There are different types of APRs, including variable APRs, which fluctuate over time. To qualify for a lower APR, practice smart financial habits like paying outstanding balances.
From purchase to penalty to introductory, annual percentage rates (APRs) can be confusing and complicated. Whether shopping for a new credit card or refinancing a loan, you may have wondered what a good APR is and how it can impact your finances.
With a good interest rate, you can save on interest charges and credit card fees, making it easier to manage debt and stay on top of payments. Understanding what qualifies as a competitive APR can help you make smarter financial decisions, from building credit with a credit card and paying interest-free bills to financing a big purchase or paying off heavy debt.
In this guide, we explain what a good APR is, how to calculate yours, and how to qualify for a lower rate.
Table of contents:
The APR is the yearly interest rate of a credit card or loan. Credit card APRs vary and are paid on outstanding balances.
Since APRs fluctuate by card and institution, they’re typically unique to each individual and are determined by common factors like:
There are so many credit cards to choose from, and weighing the differences between variable or fixed-rate APRs doesn’t make the choice easier:
The APR you choose depends on your financial situation, aversion to (or love of) risk, and your credit term.
Quick tip: APRs, especially credit card APRs, are often tied to the prime rate, a figure banks assign to valuable accounts with good credit. If prime rates increase, credit card interest rates will likely follow.
Most people and banks agree that a good credit card APR is the same or lower than the national average. According to the Federal Reserve, the national rate is just above 20%.
Finding a credit card with a good APR feels like finding gold at the end of a rainbow—but the rewards don’t stop there. Good credit card APRs can also boast additional offers like:
Still not sure what this looks like? Take a look at these APR examples—both good and bad.
Credit Card APR Table
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Poor credit card APR examples |
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If you’ve looked into, applied for, been approved for, or used a credit card, you may have wondered how credit card interest works and how the APR factors in.
Let’s break it down into a few simple steps:
For cash advances, you’ll have to pay unique interest and fees set by the institution outside your standard APR.
Quick tip: A grace period is the time between your billing cycle and when your payment is due. During this time, you can pay your outstanding balance without interest or late fees. Credit card companies are not required to offer grace periods, but many provide around 21 days before charging interest.
Knowing how interest rates work and what your APR is opens up your financial world, especially because you can discover how credit card interest is calculated on purchases and overdue balances.
To calculate APR:
APR formula: [(((Fees + interest) /principal) /Number of term days) x 365] x 100 = APR
Once you’ve (or, more accurately, your financial institution) has calculated and assigned your APR, you can calculate its impact by:
For example, imagine you owe $500 and your credit card's APR is 15% with a 30-day billing cycle. When you divide 0.15 by 365, you get .04% as your daily rate. You then multiply 0.000411 by your balance, which is $500. This means you owe about 21 cents per day.
You can then find how much you’ll owe per month by multiplying your daily balance by the number of days in your billing cycle. In our example, we’ll multiply 0.21 by 30, which means you’ll owe about $6.30 in interest each month.
From credit card cash advances to penalty APRs, there’s more than one type of APR that can impact your interest on purchases.
Credit Card APRs Table
| APR Type | Description |
|---|---|
| Purchase APR | The interest paid on outstanding balances for standard purchases |
| Cash Advance APR | A nonstandard, often higher APR paid when a credit card is used to get cash |
| Balance Transfer APR | A temporary APR that only applies to balances transferred from one card to another |
| Introductory APR | A limited-time APR offered when a new credit card is opened |
| Promotional APR | A temporary low or 0% APR that can apply to purchases and balance transfers |
| Penalty APR | A higher APR that is charged when payments are late or missing |
| Installment Plan APR | A specialty APR for Buy Now Pay Later and fixed payment plans |
Qualifying for a low APR is crucial for minimizing interest payments on purchases of all types. To improve your eligibility chances for a low APR credit card:
Below, we tackle some of the most common questions we hear about what a good APR is and how it impacts finances.
Bank of America holds the 2/3/4 rule for credit cards, which restricts applicants from opening multiple new cards over a specific period. This rule limits users from opening more than:
There are several reasons why an APR may increase, including:
To avoid paying credit card interest rates, pay your full statement balance each month by or before the due date. It’s also possible to avoid paying interest rates (for a time) by transferring a balance to a card with a 0% introductory APR.
Whether you’re just starting to build credit or you’re a ways into the journey, you need to understand your annual percentage rate—and how to lower it. Getting stuck with a high APR (or a variable rate well above the prime rate) can be brutal, so it’s crucial to do the work now to qualify for a lower APR.
If you don’t know where to start, begin by diving into your credit score with a free credit report card to learn the ins and outs of your financial history and avoid interest charges and raised rates.