Just what is an APR?

An APR, or Annual Percentage Rate, is the interest rate you'll pay if you keep a balance on the card, transfer a balance from another credit card, or take out a cash advance. The APR is a yearly (annual) rate.

The tricky thing about credit cards is that a single card can have multiple interest rates.

A card can have one APR for purchases, another for balance transfers, and even another for cash advances. You'll find that the balance transfer and cash advance APRs are usually higher than the APR for purchases. For example, the purchase APR may be 15%, while the cash advance APR is 19% and the balance transfer APR is 21%.

In addition to the above three APRs, the card may include a penalty APR. This is a rate that your APR will increase to if you are late in making your payments. For example, if you make a late payment more than twice in a six-month period, your APR will increase by a certain percentage.

Some card have tiered APRs. This means that different rates are applied to different levels of the card's outstanding balance. For example, a card balance between $1 and $1000 may carry an APR of 15%, while balances above $1000 may carry an APR of 16%.

Also watch for introductory APRs and delayed APRs. When you sign up for a new credit card, you may be offered an introductory APR. This means your APR will increase at the end of the introductory period, and usually by quite a bit.

A delayed APR means that a different rate will apply in the future. For example, a card may advertise that there will be "no interest until August of next year." So next August is when the APR will be take effect.

If you carry a balance on your card from month to month, even a small difference in the Annual Percentage Rate can make a huge difference in how much you pay over a year.

Fixed and Variable APRs

Some cards offer a "fixed rate." This means that the APR won't change, or at least that it won't change very often. (Remember, even a fixed APR can change once in a while.) However, the credit card company has to tell you when they increase the fixed APR.

Other cards offer a "variable rate." This means that the APR changes every so often. The rate is usually tied to another interest rate, such as the prime rate or the Treasury bill rate. If the other rate changes, the rate on your card might change too. Look for information on the credit card application and in the credit card agreement to see how often your card’s APR may change.