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SmartAsset: What Is Purchase APR?

Credit card issuers can charge you additional interest for making purchases while carrying balances on your credit card. This fee is known as purchase annual percentage rate, and it varies depending on your provider. In this guide, we tell you everything you need to know about purchase APRs.

A financial advisor can help you manage debt effectively, while working towards your long-term financial goals.

What Is Purchase Annual Percentage Rate (APR)?

Purchase annual percentage rate (APR) is the interest applied to your credit card bill if you’ve got an outstanding balance that rolls over from the current month to the next. This rate is applied monthly, unless you pay your balance in full by the payment’s due date. For instance, a credit card with a 17.5% APR would yield a monthly interest rate of about 1.46%.

There are two primary types of APRs: fixed APRs and variable APRs. If your credit card comes with a fixed interest rate, your rate will not change unless the credit card issuer decides to increase or decrease it. Keep in mind, though, that your issuer can change your rate as long as they provide at least 45 days’ notice.

Variable APRs tend to fluctuate on a regular basis. These rates vary based on the prime interest rate, and your issuer can change the rate without providing any notice.

What Are the 4 Types of Credit Card Interest Rates?

SmartAsset: What Is Purchase APR?

  • Purchase APR: You’re charged a purchase APR for all purchases you make with a credit card that has a balance you’ve allowed to roll over from month to month.
  • Balance Transfer APR: You’ll run into a balance transfer APR if you choose to transfer the balance of your debt from another loan or card to your credit card.
  • Penalty APR: Also known as a default APR, you’ll be assigned a penalty APR if you fail to make your credit card payments for more than 60 days. But the credit card issuers must give you at least 45 days’ notice before applying the higher interest rate. These rates typically range from 18% to 29.99%.
  • Cash Advance APR: If you use your credit card to take out a cash advance, your credit card issuer will charge you an additional interest rate and fee. You can typically withdraw cash from card’s balance by using an ATM, visiting a bank or using a convenience check. These advances also don’t come with grace periods, so you’ll charged interest as soon as you withdraw funds.

Each of these rates vary, so you’ll want to research the terms and conditions specific to your credit card issuer.

Bottom Line

You’ll face a purchase APR if you allow the balance of your credit card to carry from month to month. This rate varies per provider, and it’s applied to the purchases you make unless you pay off your card’s balance by its due date.

Tips for Saving Money on Interest

  • You can avoid purchase APRs or penalty APRs by keeping a strict budget and staying on top of your monthly payments. Another useful strategy is to choose a credit card with a low rate. That way, you won’t be faced with excessive rates and fees if you can’t pay your balance in full by the end of the month. Consider our list of the best rewards credit cards to combine strong interest rates and rewards.
  • A financial advisor can offer guidance on credit cards and various other lines of credit. Not sure where to begin? SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/Farknot_Architect, ©iStock.com/Tirachard

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
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