Types of Credit Card Annual Percentage Rates

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Types of Credit Card Annual Percentage Rates

Know the types of credit card APRs and how they work.

Promotional (introductory) interest rate

Also called a teaser rate, this is a low or zero rate designed to attract new customers. The promotional rate may apply to purchases, to balance transfers, or to both. Only in rare cases does it apply to cash advances. The promotional rate lasts only a certain amount of time, after which it rises to the regular APR. But if you should unfortunately make a late payment during the introductory period, the card company has the right to end the promotional rate and increase it to the default rate (discussed below). Situations like this are spelled out in the credit card agreement.

Regular APR

This rate is the regular rate you are charged for purchases, cash advances, and balance transfers. Each of these uses may have its own regular APR.

Default APR

The default rate is a higher rate that kicks in if you violate some aspect of the credit card agreement. Violations include going over your credit limit, making a payment late, and other actions spelled out in the card agreement. The default rate can also be activated if you default on debts to another creditor. This is called universal default, and it applies only to future balances. Though this may seem unfair to the cardholder, the company’s rationale is that it wants to identify high-risk cardholders and cover its risk accordingly. Because default APRs are quite high, cardholders would be wise to make their payments on time and keep an eye on their balances.

Tiered APRs

These are different rates for different levels of balances. For example, a card with tiered APRs may charge 15 percent on balances up to $2,000 and 14 percent on any balance above that. Tiered APRs are rare.