One piece of advice I heard when I was about to apply for my first credit card was “choose a credit card with a low APR”. I thanked them and said, “Of course. The lower the better, right?” At that time, I know nothing about APR, only its full name, Annual Percentage Rate.

So, what exactly is APR?

APR is the annual rate of interest that is paid for the money you borrow. Banks or companies that issued your credit cards have several ways to charge you for different ways of using your cards. Actually, there are five kinds of APR: Introductory, Balance Transfer, Purchase, Cash Advance and Penalty.

Introductory APR

Introductory APR is for new cardholders. It can be extremely low, even zero sometimes, and expired after 6 to 24 months. Zero APR means that you don’t have to pay interests for the money you borrowed for purchase.

Balance Transfer

Your debts on one credit card can be transferred to another card, either from a third party or just pay credit card A’s debt with credit card B. It’s reasonable. Because different credit cards have different APRs, you may want a lower interest rate for your balance. But remember, transfer fees are necessary.


We are most familiar with purchase. If you pay your monthly bill in full, you don’t have to pay for this, because it only affects unpaid balance. It can be higher or lower according to your credit history.

Cash Advance

You can take out cash with your credit card from an ATM machine, which is called cash advance. But this is financially risky. This money you take out is not yours, actually it’s a loan. You’ll have to pay the withdrawal fees and interest rates for this money. The cash advance APR is usually higher than purchase APR. You are not advised to take out cash with credit cards.

Penalty APR

Purchase rate is applied to your outstanding balance. If you don’t pay your bills at least 60 days (two monthly billing cycles), there is a penalty APR. Penalty APR can be as high as 30%. So, always remember to pay your bill every month, so that you can have a higher credit score.

Last Words

APR is not only the interest rate for your outstanding balance. Banks and companies can charge you in different ways with your credit card. There’s one thing always true about APR, which I realized years ago, the lower the better. Just be careful and pay your bill on time, then you don’t have to worry too much about APR.

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