Ever find yourself wondering what the average interest rate is on a credit card? Here are the average credit card APRs on different types of credit cards, and for different credit scores.
What Is APR?
First, what is “APR?” APR stands for annual percentage rate. APR is a basic formula that combines the U.S. Prime Rate and the issuing bank’s interest margin to show a cardholder how much they’ll owe if they don’t pay their statement balance in full each month.
The Prime Rate is the interest rate the Federal Reserve charges top clients for borrowing money. The Wall Street Journal publishes this rate, which the Fed updates regularly. Banks then extend credit lines to consumers and attach their own interest rates, known as a margin. Combining these two figures allows people to reach the APR.
How Does Knowing the Average APR of a Credit Card Help You?
Okay, so I can check out all the latest interest rate calculations here – so what?
Well, keeping up-to-date on the latest APR trends can help you when shopping for your next credit card. Knowing what the average interest rates are on different card types can let you better gauge if the offer your bank gives you is fair, what other applicants with a similar credit profile to yours are getting, and if it’s time to ditch your current issuer for an exciting new offer elsewhere!
What Is the Average Credit Card APR By Credit Score?
Those with better credit scores can expect lower interest rates. This statement holds up in almost every aspect, but statistics show that those with average (or fair) credit scores pay higher interest than those with bad credit or no credit. But why?
The reason for the higher APR for fair credit vs. bad credit has to do with the type of interest rates these cards offer. “Bad credit” cards usually have a fixed-rate APR. This static rate means issuers can offer a set rate for a wide range of credit scores at the same time. Those with no credit or a poor credit score often get secured cards. Cards that require a deposit feature a fixed APR.
People with fair credit scores have better access to quality cards. Because of this, they usually receive cards with a variable APR. But, since their credit score is subprime, they still receive worse offers than those with good or excellent credit.
Related Article: Credit Tips: How Long Does It Take to Rebuild Your Credit Score?
Average APR by Card Deposit Type
The difference between unsecured cards and secured cards is similar to the variations by credit score. Better credit scores receive variable interest rates, with better scores getting a lower interest rate. Secured cards typically offer fixed rates, on the other hand. Secured cards also provide collateral, making banks more willing to offer lower rates.
Related Article: What Are the Best Secured Cards for Rebuilding Credit?
Average APR by Card Type
Student cards offer highly competitive APRs because they provide smaller credit limits. Credit unions, on the other hand, provide exceptional value since they are member-owned and operated. Where larger banks use profits to satisfy shareholders through dividends or other investments, credit unions are not-for-profit companies. This status means that profits go directly back to members – providing them with unbeatable APRs.
Average APR by Credit Card Rewards
Rewards credit cards offer higher interest rates versus balance transfer cards or low APR cards. Higher rates are due to the value of the points or miles on offer. Because of the larger APRs, these cards are poor choices for carrying a balance. Without a 0% rate intro offer on purchases or balances, applicants should be wary about carrying a balance. Instead, pay the full statement balance each month and avoid interest building up.
Different Types of APR
The above figures cover the purchase APR. This figure is the interest rate cardholders pay when they have a statement balance. There are other types of APR, however, including:
- Balance Transfer APR: The cost of transferring the balance of one credit card to another.
- Cash Advance APR: The cost of borrowing cash from your credit line.
- Penalty APR: The cost of payment APR when you miss payments.
- Introductory APR: A special APR on purchases or balance transfers that runs for a set time.