Credit cards offer a convenient option for everyday spending, and they let you pay for anything you want. Some credit cards have lower annual percentage rates than others. It is really important to understand the average credit card APR before you decide on which credit card to use. It’s always advisable to go for lower APR cards because even the most rewarding cards will not make much sense in the long run when the interest fees build up. Let’s find out the average credit card APR so you can compare and save on fees.
Average Credit Card APR Nationwide
As of year-end 2018, the Federal Reserve reports that the average credit card APR is 14.73%. However, when you exclude customers who pay no interest on their cards, the average rate is 16.86% APR. Apparently, those who carry a balance and pay interest tend to have higher-rate cards.
Understanding Average Credit Card APR Important Terms
Grace period: Regardless of your APR, you might not pay any interest if you consistently pay off your balance every month. Put another way, your APR doesn’t necessarily dictate how much interest you’ll pay—because you can avoid interest charges altogether.
Multiple APRs: Some credit cards come with several APRs, so it’s critical to understand which one you’ll pay before you use your card. Most people think of the APR for new purchases. But you might have a separate APR for cash advances or balance transfers. Your true interest costs depend on how you use your card.
What do you qualify for? Credit card APRs depend, in part, on your creditworthiness. If you have exceptionally high credit scores, it’s easier to qualify for low-rate cards. A consistent source of income also helps. But with low credit scores, you’ll probably receive offers with relatively high interest rates.
Annual fee: Does your card charge an annual fee? If so, that’s another cost of borrowing (or just having a card). If the fee is small relative to your spending and the benefit you receive from the card, it may be worth it. But some fees are hundreds of dollars per year, and that may be a burden.
Calculate APR and Interest
You can calculate interest charges to understand how much you pay—and how much you might save with a different APR. The exact calculation varies from issuer to issuer, but the steps below give you a start on the process:
- Start with the annual rate (APR).
- Convert it to a daily rate: Divide the annual rate by 365.
- Multiply the daily rate by your account balance—this is your interest charge for the day.
Your credit card issuer may add the interest charge to your balance daily, causing your balance to grow every day. In that case, you’d repeat the steps above after adding the day’s interest charge and starting over with the new balance.
To simplify the process, you can estimate your monthly charges instead of using a daily calculation. To do so, divide your APR by 12 instead of 365 and calculate monthly interest charges. However, if you want exact numbers, you need to follow your issuer’s process, which it will outline in your card’s terms and conditions.
Tips For Minimizing Interest Costs
With a better understanding of how APR works, you can follow the tips to minimize the amount you pay;
1. Take advantage of the Grace Period
Pay off your balance every month to avoid interest costs. To take advantage of the grace period, use your card only for purchases and pay down the entire balance before your payment due date. Not all cards offer a grace period, and grace periods may not apply to balances from cash advances or other transactions, so check with your issuer for complete details.
2. Always Pay On Time
Make sure your card issuer receives your payment before the payment due date. If you pay late, your account may switch to a higher penalty APR, making it even harder to pay off debt.
3. Take Advantage of Promotional Offers
If you know that you need to borrow money on a credit card, look out for promotional offers. You might be able to borrow at 0% APR temporarily, which gives you time to pay down the debt and postpone interest charges. But beware of deferred interest offers, which can trick you into paying interest (watch for terms like “0% interest if paid in full by…”).