Does Your Credit Card's APR Matter?

A low APR could matter a lot -- but only in certain circumstances.

There are many credit cards available for consumers to choose between. And there are lots of features to take into account when picking which card is the right one. These features could include cardholder perks such as airline lounge access or rental car insurance. Or it could be the rewards program the card offers and the different categories of spending that help cardholders earn extra bonus points, miles, or cash back.

All of these different features are important, but there is one characteristic of a credit card that sometimes matters a lot -- and sometimes doesn't matter at all. It's the card's APR.

What is a credit card APR?

APR stands for annual percentage rate. It's the cost of borrowing, including fees and finance charges. And it's expressed as a percentage, such as 17% APR or 20% APR.

The annual percentage rate can vary dramatically from one credit card to the next. Some cards offer a 0% introductory APR on purchases for a set time period, such as 12 months, which would mean the cardholder wouldn't pay any interest at all on purchases made during the first year. Others advertise themselves as having a consistently low APR, while still others charge a very high annual rate and don't offer any special discounts from it for new card members.

You can find out the APR of any credit card by checking the card's terms and conditions. Just be aware that the APR could change over time since most credit cards have variable interest rates, so financing charges aren't locked in.

Does the card's APR matter?

Credit cards are known for charging a lot of interest, and the specific amount you pay to borrow can matter a great deal. That's because the interest costs on credit cards can be so expensive that they negate any benefits a card offers, such as rewards or cardholder perks.

However, you should be focused on a credit card's APR as a key feature only in one situation: if you plan to carry a balance on your card. Carrying a balance means you don't pay off your card in full when the statement comes, but rather pay the minimum payment or some other amount that's less than the total due.

If you do not pay off your balance, that's when interest starts accruing. And in these situations, you start to get hit with the high financing charges that dwarf the value of any rewards or other benefits the card offers. The higher your balance and the longer you go without paying off the card in full, the more these financing charges will cost you and the more your card's APR matters in terms of your finances.

If you pay your balance in full, though, then the card's APR doesn't matter at all. You aren't going to be paying interest, so you shouldn't really care what your interest rate is since it won't affect you.

As long as you're confident you aren't going to charge more than you can pay off each month, you don't need to look at the APR and can instead make your decision about which credit card to apply for based on other factors.