Interest rates are a key feature of many credit cards and play a big part in the potential fees you may be charged for carrying a balance.
If you already carry a balance on your credit card, you’re likely being hit with high interest charges that make it harder to pay off debt. The average APR for all credit card accounts is 14.87%, and rises to 16.88% for accounts assessed interest, according to the latest data from the Fed. But APR can be near 30% for some accounts, especially for consumers with bad or average credit (scores below 670).
You should understand the situations where you may incur interest charges and consider low interest or 0% APR credit cards if you have a history of carrying a balance or plan to finance new expenses.
Below, CNBC Select breaks down what you need to know about interest rates and how to find the lowest interest rates for credit cards.
What is an interest rate?
Card issuers refer to your credit card’s interest as your annual percentage rate (APR). An APR is the interest you’re charged for borrowing money against your credit limit.
In most cases, you won’t be charged interest if you pay off your credit card balance on time and in full each billing cycle. This applies to new purchases and typically excludes other transactions, such as balance transfers and cash advances, which often incur interest charges right away.
While card issuers express your interest rate annually, you can find the monthly interest rate, if you divide your APR by 12.
Let’s say you have an 18.74% APR: Divide by 12 to get 1.562% as your monthly interest rate. This means that whatever balance you carry on your credit card account will be charged a fee of 1.562% in addition to your payment. If your account balance is $3,000 during the month of July, you will pay $46.86 in interest for that month…Read more>>