When it comes to credit cards, you will hear the terms ‘Rate’, ‘APR’, ‘Interest Rate’, and ‘Annual Percentage Rate’ used interchangeably.

APR stands for Annual Percentage Rate, and is essentially the yearly interest rate you will be charged on your balance by your credit card company. APRs are different from the penalty fees and membership fees assessed by credit card companies.

Types of Rates / APRs:
There are 4 types of Rates/APRs on a credit card: Purchase APR, Transfer APR, Cash APR, and Default APR.

• The Purchase APR is the rate incurred for purchases made on your credit card.
• The Balance Transfer APR (or just ‘Transfer APR’) is the rate incurred to the balance transferred from another credit card. (Sometimes people transfer their balance from one card to another in order to get a lower APR, thereby lowering their payments).
• The Cash APR (also known as a Cash Advance APR) is incurred when you use your credit card for cash advances or at an ATM.
• The Default/Penalty APR is the rate that, in most cases, all of the above rates (i.e. Purchase APR, Balance Transfer APR, Cash APR) will increase to if you do not meet the terms of your credit card agreement. The only way to trigger the Penalty APR for an existing balance (i.e. purchases you have already made) is to be a full 60 days past due in making a payment. All other Penalty APR triggers, such as missing one payment (being 30 days past due) or going over your credit limit, can only affect future transactions. Be aware of the Default APR because it can cost you a lot of money.

We also recommend that you take some time to understand how credit card rates change over time and that you explore the Editor’s Picks for Best Credit Card Rates.