Types of Interest Rates You Should Know About

It’s always important to consider interest rates when you compare credit cards. But what does it mean when you see more than one interest rate advertised for a single card? Is one more important than another? Will they all affect you?

Let’s look at some of the types of interest rates you might come across while reviewing credit card offers so you make better sense of what’s being advertised.

Purchase Rates

The primary interest rate advertised is often the annual percentage rate (APR) for new purchases charged to the card. If you get a grace period, or interest free days, these interest charges would begin to accumulate after that period.

Cash Advance Rates

A cash advance rate is the APR you will be charged if you use your card to withdraw cash from an ATM. You might not get a grace period on these transactions like you do with purchases. And there can be other types of transactions that are treated as cash-equivalent. Check your cardholder agreement to see what kinds of uses are subject to the cash advance interest rate.

Balance Transfer Rates

When you move a balance from one credit card to another one, it’s called a balance transfer. And some credit cards offer special balance transfer interest rates. If you see one advertised, it’s simply the APR on any amount you transfer from another card.

It’s important to note that balance transfer rates often are valid for only a limited time. If that’s the case, any remaining balance would revert to a higher rate (like the purchase or cash advance rate) when the limited time offer expires.

Introductory Rates

Speaking of interest rates that can expire, you should understand that many credit cards feature introductory rates. These can be any type of interest rate mentioned above, but they’re usually temporary lower rates on either purchases or balance transfers.

If you see an extremely low interest rate advertised, review the offer carefully. Chances are good that it’s a temporary introductory APR.

Those are the types of interest rates you might find in advertised offers. Hopefully these brief introductions will help you sort out the details of the offers you’re considering so you can find not only great up front deals but rates you can live with in the long term.