It’s easy to skip over the fine print at the bottom of your monthly credit card statements when it mentions interest rates. But if you’ve used a credit card or borrowed money, interest rates are likely involved. Luckily, January is a great time to brush up on borrowing terms, compare interest rates, and gain a deeper understanding of how they impact your financial future.
How To Find Your Interest Rate
Let’s start with the basics of interest rates, including where you find it! Most credit card statements include your interest rate printed monthly at the bottom of your virtual or paper statement. It is usually listed as a percentage (APR) which we’ll cover in the next section.
All credit card companies issue a billing statement with a list of purchases, the interest accrued since the last billing period, and the balance you owe. This statement lists the interest charged for that month’s billing cycle. Note that you will not be charged any interest if you pay off your credit card in full each month. Interest is only charged on unpaid balances that carry over from month to month.
Note that when a credit card company advertises a 0% APR for new cardholders, it’s usually only valid for the first year of purchases to incentivize new sign-ups, after which the rate adjusts. For this reason, it’s important to note that the lowest APR is only sometimes the rate you’ll get.
Is Interest Charge On Purchases The Same Thing As Annual Percentage Rate (APR)?
As it relates to credit card purchases, yes. APR, or annual percentage rate, is the interest charged on credit card purchases. According to the Federal Reserve, in August of 2022, the average credit card interest rate in the U.S. was 18.43%.
Most of us encounter an interest rate when we finance big-ticket items like a home or a car. But here are a few examples of the types of purchases that involve interest rates:
- Mortgages
- Auto, business, school, or personal loans
- Credit cards
- “Buy Now Pay Later” services
What Is Interest Charge On Purchases: How Does It Work?
So how does interest actually accrue on your purchases? Imagine you use a credit card to purchase an item, like a new couch for $2,000. When you use our credit card to buy an item, your lender pays the furniture store up front, and you pay them back per your credit card agreement.
In this scenario, you pay the minimum amount due on your credit card at the end of the month, and the remaining balance is $1,550. That’s what’s called a “revolving balance,” and it will start accruing interest.
It’s important to do your research and understand how your credit card works when paying your balance. For example, some interest rates are fixed and unchanging, while others vary by rising or falling with the market.
Paying Your Credit Card Balance In Full Avoids Interest Charges
For those looking to build their credit history or improve their credit score, pay off your credit cards monthly in full, if you can. This avoids interest accrual charges and keeps interest rates from increasing over time. However, this isn’t always possible when financing a big purchase or paying down existing debt.
DEXSTA’s Visa Platinum Card Offers A 2.99% Introductory Rate For Borrowers
A card with no balance transfer, cash advance fees, annual fees, or minimum interest charges may sweeten the deal to make it worthwhile. DEXSTA’s VISA Platinum is just that type of card. For 12 months, you can get a 2.99% introductory APR on all borrowing. After the introductory period, your APR will be 12.90% to 18%, depending on the national prime rate.
Note that the national average for credit card interest rates in the U.S. is 18.43%, which means this offer still trends below national percentages! Check out DEXSTA’s VISA and VISA Platinum credit card offers for all the fine print details.
Also, if you’re interested in more free financial literacy resources on getting out of debt or credit card borrowing, check out our interactive library of articles on Banzai.