It’s no secret that charge card interest rates are the way credit card issuers make money by loaning cash to consumers through these pieces of plastic. The higher the interest rate on the charge card account, the more cash the bank makes. Which also means the higher the annual percentage rate on a credit card account, the higher the cost to Americans who use it. However, when people ask what your interest rate is on your charge card, they are asking a question that doesn’t make any sense. This is because most consumers who carry balances on credit card accounts have balances spread out across multiple APRs on each card. Here is a list of each different APR people might see on their charge card and what balances get charged that rate:
The Purchase Rate: The purchase rate also known as the standard interest rate on a credit card is generally the only annual percentage rate that Americans know they have. However, this annual percentage rate does not apply to all balances, it only applies to the balances accumulated through general purchases such as groceries or gas. This annual percentage rate generally does not apply to balances accumulated to cash advances, charge card checks or balance transfers.
Introductory Interest Rate: The introductory APR also known as the promotional annual percentage rate is a low rate of interest that will apply to all balances on a credit card account for a short period of time. Introductory APRs are used by banks to lure Americans into choosing their credit card account product over a competing product. These interest rates generally range between 0% and 6% and generally last between 6 and 12 months. Once the introductory period expires, the balances will be charged the annual percentage rate for their specific categories.
Balance Transfer Interest Rate: The balance transfer APR on a charge card is generally lower than or the same as the standard APR. Balance transfer interest rates are used to attract people to a charge card account product provided by competing banks. A balance transfer is when some or all debt on one charge card is paid off by some or all of the available credit on another credit card. Balances accumulated in this way are generally charged the balance transfer APR.
Cash Advance Interest Rate: The cash advance interest rate is generally the second highest APR on any credit card account account. This APR is the rate of interest that will be charged for balances accumulated through cash transactions. These cash transactions can be cash back at a local grocery store, any ATM transaction and even wiring cash or credit card account checks! If Americans have any option at all, it is best not to use a charge card account for cash transactions because of the high rate of interest that comes along with them.
Default Interest Rate: The default APR is one that Americans hope to never have to pay. This is an interest rate that will apply to all balances if people default on the account. It is a form of banks punishing people for things like late payments and spending more than the allowed credit limit. The default interest rate on most charge card accounts is 29.99% so it is best to try and stay away from it!