Purchase Annual Percentage Rate (APR)

Purchase APR: Definition, how it works, and how to avoid interest

Key takeaways
* Purchase APR is the annual interest rate a card issuer charges on purchases you carry a balance on.
* Credit card APRs are expressed annually but applied monthly (monthly rate ≈ APR ÷ 12).
* Pay your statement in full by the due date to avoid interest on purchases (grace period).
* Cards often have multiple APRs (purchases, cash advances, balance transfers, penalty APRs); rates vary by creditworthiness and card type.
* Consider low or 0% introductory APRs and balance transfers to reduce interest, but watch fees and promotional end dates.

What is a purchase APR?
Purchase APR (annual percentage rate) is the interest charged on purchases when you carry a balance on a credit card. It differs from APRs for cash advances or balance transfers and from any introductory or penalty APRs a card may carry.

How purchase APRs work
* The APR is annualized but interest is assessed each billing cycle. A 19% APR, for example, corresponds to roughly 1.58% per month (19% ÷ 12).
* You generally avoid interest on purchases if you pay the full statement balance by the due date. The time between the end of a billing cycle and the payment due date is the grace period.
* Cash advances typically have higher APRs and begin accruing interest immediately (no grace period).
* Introductory APRs (sometimes 0%) apply for a limited time; if you still carry a balance after the promotion ends, the regular purchase APR applies.

How purchase APRs can change
* Your card agreement lists the APRs when you open the account, but rates can change over time.
* Issuers may raise rates for reasons such as late payments or changes in your credit profile; they must provide notice when required by law.
* Penalty/default APRs can be triggered by late payments or exceeding your limit; they apply to future purchases and, in some cases, to existing balances after a prolonged delinquency.
* Variable APRs move with a benchmark index (for example, the prime rate). The card agreement should explain how the APR is calculated and how often it can change.

What is a “good” APR?
* APRs vary widely by card type and borrower creditworthiness. Rewards cards often have higher APRs; the lowest rates go to borrowers with the strongest credit.
* If you expect to carry a balance, a lower purchase APR saves money. Consider introductory 0% APR offers for planned large purchases—just be sure to pay off the balance before the promotional period ends.

Example: interest cost difference
Charging $5,000 and making $200 monthly payments:
* At 20% APR: ~33 months to pay off; about $1,522 in interest.
* At 15% APR: ~31 months to pay off; about $1,032 in interest.
Switching to a card with a lower APR or using an introductory 0% APR can substantially reduce interest paid.

Interest rate vs. APR
* For credit cards, the advertised interest rate is expressed as an APR, so they are effectively the same.
* For other loans (mortgages, auto loans), APR may include fees and other costs in addition to the interest rate.

How to get a better purchase APR
* Improve and maintain a strong credit score (pay on time, reduce balances, correct errors on credit reports).
* Shop different issuers and compare offers before applying.
* Consider cards with low introductory APRs or targeted promotional offers—but plan to pay down balances before promotions end.
* Negotiate with your issuer; if you have a good payment history, you may request a lower APR.

Balance transfer basics
* Balance transfer cards offer low or 0% introductory APRs for transferring existing balances, which can save interest.
* Most balance transfers charge a fee (commonly 3%–5% of the transferred amount), so compare the fee vs. expected interest savings.
* Pay attention to the length of the promotional period and the regular APR that applies afterward.

Conclusion
If you plan to carry a balance, purchase APR is one of the most important card terms to compare. Understand how your card’s APR is calculated, whether it’s variable or fixed, whether introductory or penalty rates apply, and how much interest you’ll pay over time. Use low-rate offers and balance transfers strategically, and prioritize paying balances in full when possible to avoid interest altogether.