APR — Explained

APR works in lock-step with the transactions you make on the credit card…if you don't pay off your balance each month.

  • If you don't pay your balance in full every month, and carry some of that balance forward to the next month, you will be charged interest on the unpaid balance. The amount of money you pay in interest is directly tied to your APR.
    • You'll pay less money in interest if you have a lower APR and keep a low outstanding balance.
    • You'll pay more money in interest if you have a higher APR and carry a high outstanding balance.
  • APR can be ‘variable' {subject to change on a monthly or quarterly basis} or ‘non-variable' (may change with prior notice from the issuing bank; issuers can increase rates on future transactions with 45 days notice). Be sure to understand if the issuing bank is offering you a variable or non-variable APR, as it will directly affect your interest payments each month.
  • A card offering an introductory “Teaser” rate can be an attractive option…as long as you fully understand what the higher APR will become and when it will activate. Teaser rates must last at least six months before the introductory offer expires.
  • The APR can also be different on different transactions. For example, the APR will be higher on a Cash Advance than on a regular purchase.
  • Generally, issuers can only increase your APR on existing balances if your payment is more than 60 days late; however, your original rate must be restored if you make the next six consecutive payments on time.
  • Note: lenders are required to apply your payment to the highest rate first — so if you have a $5,000 balance and $1,000 is at 18% and $4,000 is at 10%, for example, if you make a $1,000 payment, it must first be applied to the 18%.

BBB Tip: “Teaser” Rates

Mark on a calendar when the APR rate is due to increase and be mindful of your balances after that date.