What Is the Average Credit Card APR?

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Before you borrow with credit cards, it’s critical to understand how much you pay in interest and other fees. The annual percentage rate (APR) explains how much interest you pay on your balance, and that number can help you choose the right card for your needs. All other things being equal, it’s best to borrow at the lowest APR possible.

Average APR Nationwide

The Federal Reserve reports that the average credit card APR is 14.73% as of year-end 2018. But 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.

What to Know About Average Rates

Statistics are interesting, but broad averages might not offer useful guidance. For starters, extremely high or low numbers can skew the average credit card APR, and your circumstances are certainly different from other borrowers. As a result, averages can’t predict exactly what to expect. Still, it’s still helpful to have some information about the credit card landscape before you accept an offer.

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 dodge interest charges altogether.

Multiple APRs: Your credit card might have 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 not be a big deal. 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 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:

  1. Start with the annual rate (APR).
  2. Convert it to a daily rate: Divide the annual rate by 365.
  3. 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.

Example: Assume you have a balance of $3,000 on your credit card, and the card has an APR of 16%. To keep it simple, there are no purchases or payments during this period. Follow the steps above.

  1. The APR is 16% or 0.16.
  2. 0.16 divided by 365 results in a daily rate of 0.000438356.
  3. Multiply 0.000438356 by $3,000. Your daily interest charge is $1.31.

If you have activity in your account (like purchases, payments, or fees), you’ll need to adjust for those transactions.

Tips for Minimizing Interest Costs

With a better understanding of how APR works, you can take steps to minimize the amount you pay.

Use 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.

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.

Take advantage of promotions (carefully) If you know that you need to borrow money on a credit card, shop 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 deferred interest offers, which can trick you into paying interest (watch for terms like “0% interest if paid in full by…”).

Evaluate alternatives Credit cards aren’t the only way to borrow. They’re easy for everyday spending, and they let you pay for anything you want, but it may make more sense to use other loans. For example, personal loans might (or might not) have lower rates than your credit card. Plus, they may offer fixed interest rates, and they typically set a specific timeline for paying off the debt with monthly payments.