Does APR Matter When Choosing a Credit Card?

by Christy Bieber | Updated July 21, 2021 - First published on Aug. 2, 2019

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Stack of four credit cards on a gray table

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When it comes to picking a credit card, how much should you focus on the APR? Find out here.Image source: Getty Images.

APR stands for annual percentage rate. It's the cost of borrowing, including fees and interest. Every credit card has an APR, and the APR can vary dramatically from one card to another.  

Unfortunately, some of the best credit cards with the most generous rewards programs tend to have high APRs. So when you're shopping around, you may be faced with the question: Does APR matter when choosing a credit card? If you're wondering whether to worry about APR, the answer will depend on one key factor.

Do you ever plan to carry a balance?

If you pay off your credit card in full every month when the statement comes, it doesn't matter at all what your APR is. You'd only be charged interest on unpaid balances, so your interest cost will be $0 if you don't have one -- no matter what the APR.

If you don't pay off your card in full, though, you're going to be charged interest. Typically, but not always, you're charged interest based on your average daily balance. Your cardmember agreement will explain exactly how interest is charged.

And while your APR is expressed as an annual rate, interest is charged daily -- and generally compounds daily. When interest compounds, the interest you owed during that day is added onto the balance so the next day you're charged interest on a slightly higher balance.

The APR is typically quite high on credit cards. So if you carry even a small balance, you could end up owing a lot in interest -- especially if you carry that balance for many years.  

The APR that you'll end up being charged is virtually always higher than the rewards rate with even the most generous credit card rewards program. This means if you ever plan to carry a balance, you need to look for a credit card with the absolute lowest possible APR.

If you opt for a higher APR to get slightly better rewards and you then end up paying interest for months or even years, you'll be way worse off than if you'd chosen a card that charged you less to borrow.  

Is there a way to lower your APR?

Unfortunately, there are times when you may end up with a high APR -- perhaps because you chose a card with a high rate and didn't realize you wouldn't be able to pay off the card in full. If this happens to you, you should look into ways to try to reduce the interest you'll pay.

Sometimes, if you call and ask the credit card company, it will actually be willing to reduce your rate -- but there's definitely no guarantee of that. Another option is to do a balance transfer to a credit card offering a special 0% promotional APR for a limited time duration. You can reduce your rate to 0% for as long as the promotional period lasts, although you may have to pay a small fee for transferring your balance.

APR matters a lot -- under certain circumstances

As you can see, if you ever plan to carry a balance, APR matters more than any other credit card feature. But if your credit card balance is always paid off on time every month, then don't worry about APR, just pick the card with the rewards that are most generous.

Remember though, if you inadvertently get stuck with a balance on a high-APR card, taking action with a balance transfer could be essential to avoid spending an absolute fortune on credit card interest.

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