Credit Card APRs: What's a Good One?

If you pay your credit card balance every month, the APR won't matter much. But if you're in the market for a credit card, a lower APR is generally better. So what is a good APR for a credit card exactly? Our experts are here to help.

What's a good APR for a credit card?

By Jason Steele
Reviewed by Lauren Bringle, AFC®

About half of all American credit card users carry a balance, and if you're one of them, then you need to pay attention to your card's APR rate.

APR stands for Annual Percentage Rate, which is a measure of the interest charged by your credit card issuer. From representative APR, fixed APR to a variable APR, or even balance transfer APR, understanding how annual percentage rates work will help you make a smart decision about your credit cards. So what is a good APR rate? Read on below to find out.

Why does credit card APR rate matter?

When you carry a balance on your credit card (meaning, you didn’t pay the full amount due on your monthly statement), you’ll have to pay interest. Each credit card charges a different interest rate.

The interest rate on your credit card could be different from the one on a friend’s credit card. That’s because credit card issuers make different offers to people depending on that person’s creditworthiness.

The interest continues to accrue on your average daily credit card balance until it's paid off. Having just a slightly higher interest rate means that you could be paying hundreds of dollars of additional interest over the time it takes to pay off your credit card balance.

Having to pay additional interest can be hard when you are paying an outstanding balance or trying to build good credit.

Does APR matter if you pay on time?

It depends on what you mean by “on time.” The most common meaning of paying on time would be if you made at least the minimum balance on or before the due date you see on your monthly statement.

It's entirely within your right to pay only the minimum balance for the monthly payment, but unless you pay your entire statement balance, you will have to pay interest charges. And as long as you're incurring interest charges, the card's annual percentage rate will determine how much interest you will owe.

On the other hand, if you choose to pay your credit card statement balance in full and on time, then you'll avoid interest charges, and a higher APR won't matter.

Technically, interest charges are always being accrued, but they are waived when you pay your entire statement balance, in full and on time. Credit cards tend to be higher than an auto loan or personal loan, which is something to consider beforehand.

Why are credit card APRs so high?

If it feels like credit cards have a high APR compared to some other types of loans, it's because they do. And a higher APR is a higher interest rate, which means that you'll incur more interest charges if you carry a balance each time you make your monthly payment. Therefore, having a lower interest rate is always better than a higher one. If you don't want to pay much - or anything - in interest, try to get a low APR credit card, but also be sure to pay the full amount due on your credit card statement each month.

Credit cards have high APRs for two main reasons:

1. Credit card debt is unsecured debt

Unlike your home mortgage or a car loan, there’s nothing to secure the loan made with a credit card. So if the cardholder doesn’t pay his or her debt, the credit card issuer can’t foreclose or repossess anything that they can sell to get back the money from the loan.

Without any kind of security, a credit card loan made through a credit card represents a much higher level of risk than a secured loan. And as with any type of loan, the higher the risk, the higher the interest rate needs to be in order to account for the risk that you don’t pay it back ( also known as default).

2. Credit card companies have expenses, too

Secondly, a credit card account offers much more to customers than a simple loan. For example, many different types of credit cards offer rewards for spending, which represent a cost for the card issuer.

Most credit cards also offer numerous cardholder benefits, which represent further costs. And credit card issuers have other expenses like customer service, regulatory compliance and so on.

According to the Board of Governors of the Federal Reserve System, the average credit card interest rate for February of 2021 was 14.75% APR. The average interest rate for accounts that were charged interest was slightly higher 15.91%.

These recent rates are fairly consistent with the rates over the past three years. However, these rates are much higher than rates for other types of consumer credit loans in the same report.

For example, the average rates for new car loans were 5.21% for a 48 month loan and just 4.96% for a 60 month loan. Personal loans have an average rate of 9.46% for a 24 month loan.

And average rates for home mortgage loans are also much lower. As of May 6, 2021, the Federal Reserve Bank reports that a 30-year fixed rate mortgage in the US averages 2.96%.

How is the credit card APR calculated?

Credit card issuers set APRs based on numerous factors. For instance, when a credit card offers rewards in the form of points, miles or cash back, it will always have a higher interest rate than similar cards that don’t offer rewards, in order to help cover the costs of these benefits.

Credit card APRs will also correspond with the Prime Rate, which was 3.25% at the time this article was written. Nearly all credit card issuers offer variable interest rates that rise or fall when the Prime Rate changes.

For example, a card issuer may offer a variable interest rate of 19.99% APR, which is the Prime Rate plus 16.74%. If the Prime Rate were to rise to 3.5%, then this card’s interest rate would automatically rise to 20.24% APR.

A credit card’s interest rate is also set by the cardholder’s creditworthiness at the time of application. Many credit cards now offer a range of rates, rather than a single rate. For instance, a credit card may be offered with interest rates of 13.99%, 15.99% or 18.99% APR, depending on the cardholder’s creditworthiness at the time of application.

The better your credit history, the lower the interest rate you’ll be offered.

In addition, there are laws that cover credit card interest rates. The CARD Act of 2009 limits interest rate increases, and compels card issuers to give adequate notification when a 0% APR promotional rate expires.

The CARD Act of 2009 also prevents card issuers from raising rates on credit marketed with “fixed rates.” As a result, nearly all card issuers market their cards as having a variable interest rate.

The CARD Act outlawed the practice of universal default, where card issuers would raise customer rates in response to defaults on other accounts reported in the consumer’s credit history.

When does interest start to accrue?

Interest on credit card debt begins to accrue on the day of the charge, and credit card interest is calculated based on the account’s average daily balance.

Nearly all credit cards offer a grace period during which you can avoid interest by paying your entire statement balance in full. Once you pay your statement balance in full, the interest charges are waived.

How does the APR affect credit card debt?

Your interest rate has a direct effect on credit card debt. At the end of each billing cycle, the average daily balance is calculated, and each day’s balance is multiplied by the card’s APR, divided by 365, the number of days in the year.

Most credit cards will compound interest charges daily, which adds the previous day’s interest into the balance for the next day.

The result of this complicated math is that you’ll end up paying a significant amount of interest on your credit card debt, and paying these charges will lengthen the time it will take you to pay off your debt. The higher the APR, the more interest charges you will pay if you carry a balance.

See related: How to close a credit card

So what’s a good APR?

Credit cards have an average APR of around 15%, but some credit cards can have much lower APRs.

Many credit cards offer new applicants 0% APR promotional financing for a limited time. The law requires these offers to extend at least 6 months, and the longest offers will last up to 21 months.

The largest credit card issuers don’t offer credit cards with interest rates much below the national average. For example, the BankAmericard from Bank of America currently offers an interest rate of as low as 12.99% APR for its most qualified applicants.

If you look beyond the major banks, you’ll find far lower interest rates from smaller credit unions.

For instance, Space Age Credit Union in the Denver Colorado metro area offers its Platinum Visa Credit Card with a variable interest rate that’s actually equal to the Prime Rate, currently 3.25% APR. However, you have to join the credit union which is only available to people who work for particular companies or who live in a certain neighborhood in the Denver area.

If you don’t want to switch cards, you may have some luck contacting your credit card issuer and asking for a lower rate. If your credit score has improved since you applied for the card, you may qualify and receive a more competitive rate.

Otherwise, you could consider opening up a new account with a 0% APR promotional financing offer for balance transfers, and then moving your balance to the new card.

And while some people believe that the federal government caps credit card interest rates, it does not. Card issuers are allowed to charge any rate they want, and some cards marketed to people with bad credit can have interest rates as high as 30% APR, about double the national average. You’ll want to take this into account if you’re looking to get a credit card with bad credit.

And even low interest cards will impose very high penalty interest rates to cardholders who miss payments.

Bottom line

If you tend to carry a balance on your credit cards, your APR will be the most important thing to consider when looking for a new card. Whether you choose a secured credit card or low APR credit cards, finding a credit card company that works for you is one step for establishing good credit and financial security. By understanding what APR is and how credit card interest rates work, you can choose the right credit card every time.

About the author

Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason’s a commercial pilot. He graduated from the University of Delaware with a degree in History. See Jason on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

Editorial Policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).

self logo
Written on June 9, 2021
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

Take control of your credit today.

Please enter a valid email.