If you’re shopping around for credit cards, there are a few important factors to consider before making your choice. One of the most important is the annual percentage rate (APR)—the interest rate charged by the bank when a balance is carried on the card.
So, what is a good interest rate for a credit card? Finding the answer could help you save money and set yourself up for financial success.
How Is APR Determined?
While APR is sometimes fixed, it is usually a variable rate determined by your credit score as well as the U.S. Prime Rate (the lowest interest banks will charge).
As of March 2022, the Prime Rate is 3.5%. For a qualified applicant with good credit, a lender may add a lender’s margin of 13% for a total APR of 16.5%, while an applicant with poor credit will typically see a much higher lender’s margin applied. This could be anywhere from 20-30% and leave the applicant with a much higher interest rate and payment amount.
While the APR of a variable rate card can change over time, a company cannot change the APR on an existing balance. However, it can raise the interest rates on future purchases provided you receive 45-days notice.
The Different Types of APR
A single card can have different APRs depending on how and when you use it.
The most common types of APR are:
When you think about credit card interest, you’re probably thinking about the purchase APR. This is the rate that applies when you make purchases on a card and carry any part of the balance into the next billing cycle.
Cash Advance APR
The APR on cash advances is typically higher than the purchase APR on the same card, and interest often begins to accrue at the time of withdrawal.
This is the purchase APR rate offered on a limited-time basis to attract new applicants. Typically lower than the standard rate— sometimes as low as 0%—an introductory APR can last anywhere from a few months to a few years. After the introductory period, the APR will increase to the standard purchase rate.
If you violate your agreement by not making payments on time, a penalty APR may be applied to your entire balance. This can be significantly higher than the standard purchase APR.
Balance Transfer APR
This is the interest rate applied to a balance when it is moved from one account to another. Low balance transfer APRs are often used to encourage you to transfer your balance onto a new card, but the rate usually only applies for a limited amount of time. After that, the standard purchase APR kicks in.
What Is a Good Interest Rate for a Credit Card?
With so many different rates to consider, how do you know what is a good interest rate on a credit card?
The average interest rate on credit cards in the US is currently 16.45%. However, interest rates can range from 0% to well over 30%, and choosing a card with the lowest rate available can make a huge difference over time.
So, if you’re carrying debt on a high-interest card, is it a good idea to transfer your balance to a credit card with a lower APR? In some cases, yes. However, it’s important to read the fine print. Such transfers often incur a fee that can be anywhere from 1% to 5% of the total balance. Additionally, if you’re relying on an introductory APR, you must pay the full balance by the end of the introductory period.
Why Credit Card Debt Relief Might Be a Better Solution
When opening a new credit card, nobody sets out to end up in debt. But it happens. Almost half of all Americans have credit card debt and 42% of those have increased their debt since 2020. For some, transferring balances to a low-interest card can help debt become more manageable, but it’s not the answer for everyone. In many cases, it’s just a stopgap measure, not a real solution to pay off your debt.
If you have substantial credit card debt and are struggling to repay it, “What is a good interest rate?” isn’t the question you should be asking. A better question may be, “Is credit card debt relief a good option for me?”
Credit card debt relief involves having an expert negotiate with your creditors on your behalf so that you only pay a fraction of what you owe. This process can be overwhelming if you try to do it yourself, especially if you are trying to pay off multiple cards. That’s why it’s best to leave the negotiating to the experts.
Debt relief can be a great solution for people owing more than $10,000 in credit card debt who are struggling to make payments or barely making a dent in their balance. Since 2009, National Debt Relief has helped over 450,000 people resolve their debt and gain confidence in their financial independence. With our guidance, you can take control of your financial future and create a realistic path toward a debt-free life.