What Is Purchase APR?

When you swipe your credit card, you incur a charge that could eventually cost you in interest if you don’t repay on time. The amount you pay in interest is based on your purchase APR, or annual percentage rate.

Purchase APR is just one of many complex terms you’ll see on a credit card agreement, and knowing what it means will set you up to better understand your debt. Here’s everything you need to know about your credit card’s purchase APR – including what it means, how it works and how to get the lowest APR possible.

What Is Purchase APR?

Purchase APR is the interest rate charged on credit card purchases if you carry a balance on the card. APR stands for annual percentage ratethough for credit cards it’s typically based on a rate charged daily. Credit card companies calculate APR by multiplying the daily rate — called a periodic interest rate — by 365 to land on the rate advertised to you. For example, a periodic rate of 0.06457 % would compute an APR of 23.6%.

The US Truth in Lending Act requires credit card companies and other lenders to disclose interest rates as an APR to ensure you can compare rates across companies fairly. (Before this requirement, you might not have known whether you were looking at a daily rate, monthly rate or annual rate, making it tough to know how lenders stacked up to each other.)

For a credit card, purchase APR is distinguished from other rates of interest you can incur on the card, including:

  • Balance transfer APR: the interest rate charged on the portion of your credit card balance you moved over from a different card.
  • Cash advance APR: the interest rate charged on the portion of your credit card balance that you withdrew as cash (ie cash advances).
  • Penalty APR: an increased interest rate you’re charged for a period if you’re at least 60 days late on making the minimum payment on a credit card bill.

Purchase APR is typically the most prominent interest rate advertised for a credit…

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