What Is a Good APR for a Credit Card?

A good APR usually sits at or below the national average, currently above 20%. There are different types of APRs, including variable APRs, which fluctuate over time. To qualify for a lower APR, practice smart financial habits like paying outstanding balances.

From purchase to penalty to introductory, annual percentage rates (APRs) can be confusing and complicated. Whether shopping for a new credit card or refinancing a loan, you may have wondered what a good APR is and how it can impact your finances. 

With a good interest rate, you can save on interest charges and credit card fees, making it easier to manage debt and stay on top of payments. Understanding what qualifies as a competitive APR can help you make smarter financial decisions, from building credit with a credit card and paying interest-free bills to financing a big purchase or paying off heavy debt.

In this guide, we explain what a good APR is, how to calculate yours, and how to qualify for a lower rate.

Table of contents:

• What is APR?
• What is a good credit card APR?
• How does APR work?
• How to calculate APR
• Types of APRs
• 7 ways to qualify for a lower credit card APR

What Is APR?

The APR is the yearly interest rate of a credit card or loan. Credit card APRs vary and are paid on outstanding balances.

Since APRs fluctuate by card and institution, they’re typically unique to each individual and are determined by common factors like:

• Interest rate range: The different tiers of potential interest rates a card issuer may offer
• Creditworthiness: The extent to which a person may receive financial credit, which is based on past credit history and financial health
• Benchmark interest rates: A financial institution’s variable rate that shifts over time based on business decisions or economic changes
• Transaction types: Cash advances, balance transfers, and purchases may offer different APRs

Variable vs. Fixed-Rate APR

There are so many credit cards to choose from, and weighing the differences between variable or fixed-rate APRs doesn’t make the choice easier:

• Variable APR: Interest rates tied to additional factors; can be difficult to predict
• Fixed-rate APR: Interest rates that remain the same from when an account is opened until it’s closed

The APR you choose depends on your financial situation, aversion to (or love of) risk, and your credit term. 

Quick tip: APRs, especially credit card APRs, are often tied to the prime rate, a figure banks assign to valuable accounts with good credit. If prime rates increase, credit card interest rates will likely follow.

What Is a Good Credit Card APR?

Most people and banks agree that a good credit card APR is the same or lower than the national average. According to the Federal Reserve, the national rate is just above 20%.

Finding a credit card with a good APR feels like finding gold at the end of a rainbow—but the rewards don’t stop there. Good credit card APRs can also boast additional offers like:

• Long-term (12-24 month) purchase periods or balance transfer options
• Fixed rates under the national average
• Waived annual fees

Still not sure what this looks like? Take a look at these APR examples—both good and bad.

How Does APR Work?

If you’ve looked into, applied for, been approved for, or used a credit card, you may have wondered how credit card interest works and how the APR factors in. 

Let’s break it down into a few simple steps:

1. The bank or financial institution sets your APR.
2. You make purchases with your credit card.
3. You pay your outstanding balance inside or outside the grace period.
4. If you pay outside the grace period, you’ll be charged interest based on the card’s specific APR.

For cash advances, you’ll have to pay unique interest and fees set by the institution outside your standard APR.

Quick tip: A grace period is the time between your billing cycle and when your payment is due. During this time, you can pay your outstanding balance without interest or late fees. Credit card companies are not required to offer grace periods, but many provide around 21 days before charging interest.

How to Calculate APR and Its Impact

Knowing how interest rates work and what your APR is opens up your financial world, especially because you can discover how credit card interest is calculated on purchases and overdue balances. 

To calculate APR:

1. Add together all your fees and interest.
2. Divide that total by the principal amount.
3. Divide this amount by the number of days in the term.
4. Multiply by 365.
5. Multiply by 100 to express the total as a percentage.

APR formula: [(((Fees + interest) /principal) /Number of term days) x 365] x 100 = APR

Once you’ve (or, more accurately, your financial institution) has calculated and assigned your APR, you can calculate its impact by:

1. Finding your daily rateby dividing the APR by 365.
2. Finding your daily balance by multiplying the daily rate by what you owe. 

For example, imagine you owe $500 and your credit card’s APR is 15% with a 30-day billing cycle. When you divide 0.15 by 365, you get .04% as your daily rate. You then multiply 0.000411 by your balance, which is $500. This means you owe about 21 cents per day.

You can then find how much you’ll owe per month by multiplying your daily balance by the number of days in your billing cycle. In our example, we’ll multiply 0.21 by 30, which means you’ll owe about $6.30 in interest each month.

Types of APRs

From credit card cash advances to penalty APRs, there’s more than one type of APR that can impact your interest on purchases.

APR Type	Description
Purchase APR	The interest paid on outstanding balances for standard purchases
Cash Advance APR	A nonstandard, often higher APR paid when a credit card is used to get cash
Balance Transfer APR	A temporary APR that only applies to balances transferred from one card to another
Introductory APR	A limited-time APR offered when a new credit card is opened
Promotional APR	A temporary low or 0% APR that can apply to purchases and balance transfers
Penalty APR	A higher APR that is charged when payments are late or missing
Installment Plan APR	A specialty APR for Buy Now Pay Later and fixed payment plans

7 Ways to Qualify for a Lower Credit Card APR

Qualifying for a low APR is crucial for minimizing interest payments on purchases of all types. To improve your eligibility chances for a low APR credit card:

1. Improve your credit score. Make on-time payments, get current on late balances, and avoid opening multiple lines of credit at once.
2. Take advantage of promotions. Consolidate debt or use balance transfer credit cards, when applicable.
3. Pay on time. Don’t carry a balance on your credit card if you don’t have to, and pay your balance before the grace period ends.
4. Don’t max out your cards. Keep your credit utilization ratio low—below 30%—to help institutions determine how risky your future behaviors will be.
5. Clear any outstanding balances. Pay down existing debt to minimize how your interest stacks against you. 
6. Negotiate your rate. Contact your card issuer and ask for an APR reduction if you’ve improved your finances or are experiencing a temporary financial hardship.
7. Consider smaller financial institutions. Smaller institutions may offer better rewards or lower rates, so shop around before deciding on a card.

Good APR FAQ

Below, we tackle some of the most common questions we hear about what a good APR is and how it impacts finances.

What Is the 2/3/4 Rule for Credit Cards?

Bank of America holds the 2/3/4 rule for credit cards, which restricts applicants from opening multiple new cards over a specific period. This rule limits users from opening more than:

• Two new cards within 30 days
• Three new cards within 12 months
• Four new cards within 24 months

Why Did My APR Increase?

There are several reasons why an APR may increase, including:

• The end of a promotional period
• An increase in the prime rate
• Multiple late payments
• A credit score drop
• A high card balance

How Do I Avoid Paying Interest Rates?

To avoid paying credit card interest rates, pay your full statement balance each month by or before the due date. It’s also possible to avoid paying interest rates (for a time) by transferring a balance to a card with a 0% introductory APR.

Set Yourself Up for Financial Success with a Good APR

Whether you’re just starting to build credit or you’re a ways into the journey, you need to understand your annual percentage rate—and how to lower it. Getting stuck with a high APR (or a variable rate well above the prime rate) can be brutal, so it’s crucial to do the work now to qualify for a lower APR.

If you don’t know where to start, begin by diving into your credit score with a free credit report card to learn the ins and outs of your financial history and avoid interest charges and raised rates.

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