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Does APR matter if you pay your credit card on time?

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    Quick insights

    • Your credit card’s annual percentage rate (APR) is your credit card’s interest rate.
    • If you carry a balance on your credit card, you’ll need to pay interest until it’s paid off in full.
    • If you pay off your monthly statement balance in full and on time, you likely won’t need to pay interest on purchases.

    When it comes to choosing a credit card, it’s important to consider its APR. This figure refers to how much interest you will pay if you carry a balance on that card.

    But APR likely doesn’t matter as long as you pay off your balance on time. This is because interest on purchases will only accrue if you carry a balance from month to month. However, there are different types of APR. For example, a cash advance APR is usually higher than your purchase APR, and assessed at the time of transaction.

    Read on to learn more about how APR works and how to best manage your credit card to avoid paying interest on purchases.

    What is APR?

    APR refers to the annual cost of borrowing money from a credit card issuer or a lender. Credit cards have a fixed-rate or a variable APR. Here’s the difference between the two:

    • Fixed-rate APRs usually don’t change after you open your account.
    • Variable APRs are subject to change over time. The frequency of this may vary depending on current economic factors and your credit issuer’s policy.

    There are multiple kinds of APR, though. Normally, purchase transactions on your card have a purchase APR, which is typically the APR people refer to when talking about credit cards. Some cards may have introductory APRs that are lower for a certain amount of time after opening the account.

    You may also have to pay a penalty APR if you have late payments, or a cash advance APR if you withdraw cash.

    Read more about how to calculate your APR if you think you may carry a balance month to month.

    How your credit card payment can affect purchase APR

    Your purchase APR matters if you carry a balance on your credit card, because interest will begin accruing after the grace period ends. The grace period consists of the days between the end of your card’s billing cycle and the payment due date. After this period ends, you will need to pay interest on the remaining balance if you don’t pay off your balance in full.

    If you pay off your balance on time, you likely won’t need to pay interest on purchases. But keep in mind that for cash advances, for example, you will still need to pay your cash advance APR, which will start accruing when the transaction takes place.

    It’s typically best to pay off accumulated APR interest as soon as possible, because credit card interest compounds daily (so the longer you wait, the more interest you will pay). Paying off the statement balance in full can help you avoid accumulating interest and debt over time.

    Tips on how to avoid paying APR on your credit card

    While most credit cards have several APRs, you can avoid paying interest by following these tips:

    • Pay off your balance on time and in full; this means the total amount on the due date (to avoid purchase APR, late payment APR/fees).
    • If you can’t pay off your balance in full, at least pay the minimum payment (the lowest amount required by your card issuer in order to not consider it a late payment).
    • Avoid balance transfers or cash advances if possible to avoid balance transfer APRs and cash advance APRs, which start accruing on the transaction date.
    • If you have a larger purchase planned, you may want to consider applying for a card with a 0% introductory APR offer and pay it off before the promotional period ends.

    What to consider if you need to carry a balance on your credit card

    Life happens, and sometimes you might need to carry a balance on your credit card. Consider the following if you aren’t able to pay off your credit card bill in full:

    • Set aside money each month as part of a debt repayment plan.
    • Read your credit card’s terms and conditions to understand how APRs and fees work.
    • Understand that your credit score could suffer if you’re unable to make consistent payments or pay them late.

    In summary

    Paying your credit card balance on time and in full is a healthy financial habit. By doing so, you’ll most likely avoid paying your card’s APR on purchases and late payment fees. It’s also important to be mindful of transactions like cash advances or balance transfers that may have a higher APR than the one you have for purchases.

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