Your credit card APR depends on several factors, including your credit score and the type of credit card. The average credit card interest rate -- usually expressed as the annual percentage rate or APR -- for cardholders carrying a balance is 16.61%, according to a recent study on waiving credit card interest. But that isn't necessarily a good APR for a credit card, especially considering that the Federal Reserve interest rate is at historic lows.
So, what is an annual percentage rate? It's your card's finance charge expressed annually. This number is typically the biggest deciding factor in how much it will cost you to carry a balance on your credit card, making it important to know and understand.
Even more importantly, though, you should be asking: What is a good interest rate? And am I getting the interest rate I deserve? Read on to find out what your credit card interest rates should look like and how to get them lower.
A good APR for a credit card is anything below 14% -- if you have good credit. If you have excellent credit, you could qualify for an even better rate, like 10%. If you have bad credit, though, the best credit card APR available to you could be above 20%. Even the best secured credit cards for building credit often have a credit card APR starting around 22.99%.
The highest credit card interest rates are usually found on:
Those with the lowest APRs tend to be low-interest credit cards and credit cards from credit unions. Some of the best low interest credit cards have a credit card APR range starting at 12% to 14%. Many popular credit unions offer credit cards with interest rates that start at 5.99% to 8% for their most creditworthy members.
For context, the average credit card APR across all credit card types ranges from 15.49% to 22.61% as of June 2020. Credit cards usually offer an APR range, rather than a single across-the-board rate for all transaction types.
A good way to improve your chances of getting approved for a low-interest credit card is to improve your credit score. Only consumers with an excellent credit score qualify for credit cards with the lowest credit card APR.
Even if you get a good APR for a credit card, most credit card interest rates are actually quite high. Credit cards are especially expensive when compared with the average interest rate on a personal loan (which is 9.41%). Still, you should strive for the best credit card APR you can get, particularly if you plan to carry a balance.
To give you a sense of just how much difference a few percentage points can make when it comes to paying off credit card debt, the table below shows you what it looks like to pay off $10,000 of credit card debt in $300 monthly installments with three different interest rates.
|Metric||18% APR||14% APR||10% APR|
|Time to pay off debt||3.9 years||3.6 years||3.3 years|
|Total interest paid||$3,967||$2,738||$1,764|
|Total amount paid||$13,967||$12,738||$11,764|
As you can see, having an 18% APR instead of a 10% APR tacks on more than seven extra months to your monthly payments and costs you $2,203 more in interest.
There is no one answer to what a good interest rate for a credit card is -- it depends largely on your credit score and how you want to use the credit card. However, the national average for a low-interest credit card is sitting at 13.99% at the time of this writing.
There are many ways to get a card with a low interest rate. If you're currently paying off debt or plan to carry a balance, lowering your interest rate is one of the most effective ways to save money. Whether it's working with your current issuer or opening a new credit card, you have a number of options.
Here are some steps you can take to get approved for a low-interest credit card:
Negotiate with your bank: Almost everything is negotiable, including your credit card APR. If you've demonstrated that you can pay your bills on time, call your bank and ask if you qualify for a lower interest rate. This is especially effective if your credit score has gone up since you originally joined. Be sure to mention your good credit score and history of on-time payments.
Apply for a low-interest credit card: If calling your bank doesn't work, shop around for a different credit card. There are plenty of great low-interest credit cards out there. These are good to have on hand if you ever have to carry a balance. Just make sure you qualify before you apply.
Get a 0% intro APR credit card: If you already have credit card debt and are paying a high interest rate on it (think 14% or more), consider a balance transfer credit card. These credit cards offer a 0% APR on balance transfers for a limited period of time, allowing you to pay off your debt interest-free. Keep in mind that most of these cards do charge a balance transfer fee. Also, if you don't pay off your balance before the promotional period ends, you might end up with a higher credit card APR than you had before.
Join a credit union: Sometimes credit unions offer interest rates even lower than those that come with low-interest credit cards from major banks. That's because credit unions are not-for-profit organizations that pass off their profits to members in the form of low fees and better interest rates on savings accounts and credit cards. You do have to qualify to be a member, but often, joining a credit union is as simple as paying a small annual fee or living in a certain area.
Don't carry a balance: The best solution to avoid paying high interest fees is to avoid carrying a balance at all. Paying off your credit card bill in full every month will ensure that you don't waste a cent on interest fees.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.