The Ins And Outs Of Credit Card Interest Rates

It's no secret that charge card account APRs are the way charge card account issuers

make cash by loaning cash to Americans through these pieces of plastic. The higher the interest rte on the credit card, the more money the bank makes. Which also means the higher the APR on a charge card account, the higher the cost to Americans who use it. However, when people ask what your APR is on your charge card, they are asking a question that doesn't make any sense. This is because most people who carry balances on credit cards have balances spread out across multiple APRs on each card. Here is a list of each different APR people might see on their credit card account and what balances get charged that rate:

The Purchase Rate: The purchase rate also known as the standard annual percentage rate on a credit card account is generally the only APR that people know they have. However, this APR does not apply to all balances, it only applies to the balances accumulated through general purchases such as groceries or gas. This interest rate generally does not apply to balances accumulated to cash advances, credit card checks or balance transfers.

Introductory Interest Rate: The introductory annual percentage rate also known as the promotional APR is a low rate of interest that will apply to all balances on a charge card account for a short period of time. Introductory APRs are used by banks to lure consumers into choosing their credit card product over a competing product. These APRs generally range between 0% and 6% and generally last between 6 and 12 months. Once the introductory period expires, the balances will be charged the interest rate for their specific categories.

Balance Transfer Interest Rate: The balance transfer annual percentage rate on a charge card is generally lower than or the same as the standard interest rate. Balance transfer annual percentage rates are used to attract consumers to a charge card product provided by competing banks. A balance transfer is when some or all debt on one charge card account is paid off by some or all of the available credit on another credit card account. Balances accumulated in this way are generally charged the balance transfer interest rate.

Cash Advance Interest Rate: The cash advance annual percentage rate is generally the second highest APR on any charge card account. This interest rate is the rate of interest that will be charged for balances accumulated through cash transactions. These cash transactions can be cash back at a local grocery store, any ATM transaction and even wiring cash or credit card checks! If consumers have any option at all, it is best not to use a credit card for cash transactions because of the high rate of interest that comes along with them.

Default Interest Rate: The default APR is one that Americans hope to never have to pay. This is an APR that will apply to all balances if people default on the account. It is a form of banks punishing consumers for things like late payments and spending more than the allowed credit limit. The default interest rate on most credit card accounts is 29.99% so it is best to try and stay away from it!

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