All You Need to Know about Purchase APR

When you borrow money, whether through a credit card, car loan, or mortgage, your lender or credit issuer charges interest on the borrowed amount, often expressed as an annual percentage rate (APR). For credit cards, the most common APR you’ll encounter is the purchase APR.

The purchase APR is the interest rate applied to credit card purchases that aren’t paid off in full before the end of the grace period. However, credit card APRs can be influenced by various factors, including introductory rates or penalty rates, which can make them more complex. Here’s what you need to understand about your card’s purchase APR and how it compares to other APRs that might apply.

What is a purchase APR?

The purchase APR on a credit card is the annual interest rate applied to purchases you make with the card. This rate determines how much interest accrues on your balance over the course of a year, based on the card’s billing cycle. If you carry a balance on your credit card, the purchase APR is crucial to consider, as it significantly impacts the amount of interest you’ll pay over time.

Here’s an example comparing two credit cards, each with a $3,000 purchase charged and repaid with $200 monthly payments:

Other types of APR

Making new purchases is the most common use of a credit card, so the purchase APR is often the most crucial number to know. However, there are other scenarios where different APRs may apply:

• Balance Transfer APR: When you transfer debt from another credit card, this transaction may be subject to a different APR than your regular purchases.
• Cash Advance APR: If you withdraw cash using your credit card, it usually comes with a higher APR than the purchase APR and begins accruing interest immediately, with no grace period.
• Introductory APR: To attract new customers, credit card issuers sometimes offer 0% APR on purchases, balance transfers, or both for a limited time.
• Penalty APR: This higher APR may be applied if you miss payments over a specified period, usually around 60 days. It replaces your regular purchase APR and affects both your existing and future balances, typically for at least six months.

What to know about purchase APRs

As mentioned earlier, the purchase APR determines the interest you’ll incur if you carry a balance from month to month instead of paying off your purchases in full.

Typically, APRs are variable, which means your purchase APR can fluctuate based on changes in the U.S. prime interest rate. While less common, some credit cards offer a fixed APR, which remains unaffected by fluctuations in the prime rate.

How to find your current purchase APR

To find your current purchase APR, you can:

1. Review Your Monthly Statement: Look for the “Interest Charge Calculation” section on your credit card statement. Your current purchase APR will be listed there.
2. Check Your Online Account or App: Log in to your credit card account online or via the app. Your purchase APR will be detailed in your account information. You can also access your most recent credit card statement through your online account.

If your card is offering a promotional or introductory APR, your statement will indicate how much longer the promotional rate will apply. This helps you prepare for any interest charges on balances remaining after the introductory period ends. Familiarizing yourself with how to read your credit card statement will assist you in managing your account effectively.

How much can you save with an introductory purchase APR?

If a credit card offers a lower introductory APR compared to its regular purchase APR, you can save significantly on interest during the introductory period. Many of these cards provide 0 percent interest for 12 to 21 months.

Consider this example:

With a $3,000 purchase on a card offering an 18-month 0 percent intro APR, your $200 monthly payments will fully pay off the balance in just 15 months. This means you’ll avoid paying any interest, as your debt will be cleared before the introductory period ends.

Top 0 percent APR credit cards can help you pay off balances (or transfers if it’s a balance transfer card) before the introductory rate expires. After the promotional period, the card issuer will start applying the regular purchase APR to any remaining balance and new purchases.

In Conclusion

A purchase APR is the interest rate applied to purchases made with a credit card. Different transactions, such as cash advances or balance transfers, might have their own separate APRs.

The regular purchase APR is the standard rate that applies when no other special rates are in effect. For example, if your card offers an introductory APR, the regular purchase APR will take over once the introductory period ends. To find out your current purchase APR, you can check your credit card statement or log in to your online account.