Purchase APR

Purchase APR is the annual percentage rate that applies to outstanding balances on purchases made using a credit card. The purchase APR is the interest rate charged on the remaining balance for any purchases made with the card if the total balance of a credit card is not paid in full each month; when the balance is paid in full each month, no purchase APR finance charges are applied.

While the purchase APR applies to balances on purchases made with the card, other APR rates that the lender must disclose include the balance transfer APR, the cash advance APR, the introductory APR and the penalty APR.

One credit card can carry various APRs. For example, a card may offer an introductory interest rate of 0% on purchases. If paid off within the given time frame, the promotional rate can save the cardholder money. All APR information is clearly displayed in a comparison chart on a credit card agreement and on the issuer's credit card website.

The purchase APR can be a fixed or variable rate. A fixed APR is not determined by a reference rate and is more stable than a variable rate. Most issuers reserve the right to change a fixed APR based on market conditions and on how the cardholder uses and maintains credit accounts. The issuer must notify the cardholder of the rate change before it takes effect.

A variable rate is calculated by adding a set number determined by the card issuer, called a margin, to a reference rate, called the index. The index typically follows the movements of the U.S. prime rate, the Treasury bill rate or another interest rate index. When the index goes up or down, the variable APR may change, depending on whether the issuer updates its rates monthly or quarterly.

A purchase APR is typically lower than a balance transfer APR or a cash advance APR. For example, a credit card may have a purchase APR of 14.99% and a cash advance APR of 19.99%. Because cash advances typically do not have a grace period, interest begins accumulating immediately.

Varying credit card interest rates apply to different parts of an account balance. Some cards have an introductory APR lasting a set amount of time. Many cards carry a penalty or default APR that is triggered when making a late payment or exceeding the credit limit. The penalty APR often applies to future purchases, but it can affect the existing balance if payment if over 60 days late.