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What is Purchase APR on Credit Cards?

Oliver KahnVerified
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Summary：Understanding Purchase APR is crucial for credit card users. It is the interest rate charged on the balance of a credit card account for purchases. Higher Purchase APR means more interest charges over time. The best way to avoid it is to pay off your balance in full each month.

Purchase APR, or Annual Percentage Rate, is the interest rate charged on the balance of a credit card account for purchases. It is the cost of borrowing money from the credit card company when you don't pay off your balance in full each month. Understanding how Purchase APR works is important for anyone who uses a credit card, as it can affect your finances significantly.

How is Purchase APR determined?

Credit card companies set Purchase APR based on several factors, including the current market interest rates, the applicant's creditworthiness, and the type of credit card. The better your credit score, the more likely you are to qualify for a lower Purchase APR. The type of credit card you have can also affect your Purchase APR. For example, rewardscredit cardsmay have a higher Purchase APR than basic credit cards.

How does Purchase APR affect your finances?

If you carry a balance on your credit card, the Purchase APR will be applied to that balance each month until it is paid off. This means that the higher your Purchase APR, the more you will pay ininterest chargesover time. For example, if you have a credit card balance of $1,000 with a Purchase APR of 18%, and you only make the minimum payment each month, it will take you over 7 years to pay off the balance and you will end up paying over $1,300 in interest charges.

How can you avoid high Purchase APR?

The best way to avoid high Purchase APR is to pay off your credit card balance in full each month. This will help you avoid interest charges altogether. If you can't pay off your balance in full, try to pay more than the minimum payment each month to reduce the amount of interest you have to pay. You can also look for credit cards with low or 0% introductory Purchase APR offers, which can help you save money on interest charges.

What are some other factors to consider when choosing a credit card?

In addition to Purchase APR, there are several other factors to consider when choosing a credit card. These include annual fees, rewards programs, credit limits, and additional benefits such as travel insurance or purchase protection. It's important to weigh the costs and benefits of each credit card option and choose the one that best fits your needs and financial situation.

In conclusion, understanding Purchase APR is an important part of managing your finances when using a credit card. By paying off your balance in full each month or choosing a credit card with a low Purchase APR, you can avoid high interest charges and save money in the long run. It's also important to consider other factors when choosing a credit card and to use it responsibly to avoid debt and financial stress.

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