Sifting through credit card offers can be daunting. There are so many numbers and lengthy explanations that it can be easy to miss the most important details.
Though it’s always a good idea to read over every contract you sign, when it comes to picking a new credit card, there is one detail consumers should try not to miss: the card’s annual percentage rate, or APR.
Taking the time to find out what an APR is and how it might affect the monthly payment is a wise step before comparing credit card offers.
What Is an Annual Percentage Rate?
Is it the same as an interest rate? Not quite. An APR is the total cost of the loan expressed in annual terms—a small, but important, distinction. A credit card’s APR might include the interest rate as well as fees for late payments, foreign transactions, or returned payments.
Federal Reserve, the US national average credit card APR was 15.09% in February 2020. It’s reasonable to assume that an APR at or below the national average is considered “good.” That said, qualifying for a “good” APR may hinge on a consumer’s credit score.
APR and interest rates also change alongside federal interest rates changes, so it’s important for consumers to not only rely on an average that may be out of date, but rather, look at the offer presented to them at the time.
It’s a good idea for consumers to attempt to seek out the lowest rate possible for their financial situation.
Low vs. High APR Cards
Some credit cards tend to have higher APRs than others. For example, rewards credit cards tend to have higher APRs, but provide value via perks, discounts, points, or other benefits.
On the other hand, many low-interest cards come with fewer perks, but again, can save someone money in the long run if they need to carry a balance.
Low-interest cards also tend to be reserved for those with higher than average credit scores, so they may be harder to qualify for with lower credit.
How to Avoid Paying APR
There is one way to avoid paying an APR altogether, at least with credit cards, and that is by paying off the balance each and every month. By paying off the balance a consumer will never have to pay interest or any APR-related fees.
However, it’s still a good idea to seek out a good APR offer just in case a large purchase means carrying a balance for some time.
Tips for Qualifying for a Better APR
The APR a person qualifies for typically depends on his or her individual credit score. This means, those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they are totally out of luck, but might be offered the same card at a higher APR.
improve their credit score.
One step is to check their credit report regularly for accuracy. US federal law allows consumers to get one free credit report annually from each of the three credit reporting agencies.
Consumers can also improve their personal credit scores by making debt payments on time and trying to use only 30% of their available credit at any given time. Payment history accounts for 35% of the total credit score, and credit utilization—how much of a person’s total credit is being used at a given time—accounts for 30% of the total credit score.
Reparing a poor credit score can take some time, but it’s worth the work.
Personal Loans and Credit Card Debt
If you’re currently carrying credit card debt on multiple cards and feel as though you may be paying too much in interest and APR-related fees, it may be time to look into consolidating that debt with a personal loan.
Consolidating credit card debt essentially allows a person to pay off their existing debt with a personal loan. Only one monthly payment instead of several could mean less to worry about.
Consolidating debt may mean qualifying for more favorable terms, such as a lower APR, which could help you pay less over the life of the debt. When considering consolidating debt, it’s a good idea to look at the fine print on any loan application to find out what fees a lender might be charging.
SoFi personal loans come with no hidden fees, such as those pesky origination fees, making it clearer to understand just what you’re paying for with a loan.
Learn more about consolidating credit card debt with a SoFi personal loan.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.