Purchase APR vs Cash Advance APR: Key Differences Explained

The purchase APR and cash advance APR are two different beasts, and understanding their differences can save you a pretty penny.

The purchase APR is typically lower than the cash advance APR. For example, if your credit card has a purchase APR of 12.99%, the cash advance APR might be a whopping 24.99%.

You can avoid the higher cash advance APR by not using your credit card to get cash advances. Instead, try to make purchases or pay bills with your card.

If you do need cash, consider using a different source, such as a personal loan or a credit card with a lower cash advance APR.

APR is a crucial concept to grasp when it comes to credit cards. APR stands for Annual Percentage Rate, which is the total cost of borrowing money, including interest and fees.

APR is not the same as interest rate, although they're often used interchangeably. A 10% annual interest rate means you pay 10% of the outstanding balance per year, but APR includes additional fees like closing costs, private mortgage insurance, and application fees.

Credit card companies determine APR using factors like your credit history, the prime rate, and the type of credit card. A higher credit score can help you qualify for a lower APR, while a rewards credit card might have a higher APR to offset the rewards offered.

There are different types of APRs, including purchase APR, balance transfer APR, cash advance APR, introductory APR, and penalty APR. Your credit card agreement will specify the APRs associated with your card.

To calculate credit card interest, credit card issuers use one of two methods: daily balance or average daily balance. The method used will be specified in your card's pricing and terms section.

Here's a breakdown of the key APR types:

The APR on a credit card is an annualized percentage rate applied monthly. If the advertised APR is 19%, for example, the interest rate imposed on the outstanding balance each month would be 1.58% (19% divided by 12 months).

Credit cards can have multiple types of APR, and understanding these different rates can help you make informed decisions about your spending habits.

There are several types of APR, including purchase APR, balance transfer APR, cash advance APR, introductory APR, and penalty APR.

Purchase APR is the rate for purchases made with your credit card, while balance transfer APR is the rate for balances you transfer to your credit card.

Cash advance APR, on the other hand, is the rate for credit card transactions classified as cash advances.

Introductory APR is a special introductory rate, often 0%, that credit cards may offer on purchases, balance transfers, or both types of transactions.

A penalty APR is an elevated APR imposed for violating your cardholder agreement, such as being 60 days or more late on your credit card payment.

Here are the different types of APR summarized:

Calculating APR can be a bit tricky, but it's essential to understand how it works. APR is the total cost of borrowing money, and it's always expressed as an annual percentage.

To calculate APR, you need to consider the interest rate and any other fees associated with the loan. For example, with mortgages, the APR includes closing costs, private mortgage insurance, and application fees.

A mortgage's APR can be higher than its interest rate, even if it's just by a small margin, like 6.8% compared to 6.7%. This is because the APR includes all the extra fees.

If you're using a credit card, the APR and interest rate are essentially the same thing, since the only borrowing-related charge is interest.

To avoid paying interest on your credit card, you need to pay the statement balance in full every time you make your monthly payment. This way, credit card companies won't charge you interest on your remaining statement balance.

Only use your credit card for purchases, as interest is charged on remaining statement balances, not on purchases right away. Cash advances, however, can start charging you interest immediately.

If you can't pay off your credit card balance in full, look for a 0% intro APR offer on purchases or a balance transfer card with a 0% intro APR on balances you bring over. This can give you some breathing room to pay off your debt without incurring interest charges.

Here are some options to consider:

APR, or Annual Percentage Rate, is the total cost of borrowing money, including interest and any other fees associated with a loan or credit card. APR is always expressed as an annual percentage.

APRs can be calculated in different ways, depending on the type of loan or credit card. For credit cards, APR is typically calculated using one of two methods: daily balance or average daily balance.

The daily balance method involves multiplying the daily interest rate by the balance at the end of each day. For example, if you have an 18% credit card APR, it will have a daily rate of 0.049%. This means that if you have a balance of $500, the interest added each day would be $0.49, making the new balance $500.49.

A credit card's APR is usually higher than a mortgage APR or auto loan APR, which means it's even more important to pay off your balance in full each month to avoid interest charges.

To calculate your daily interest rate, you can divide your APR by 365. This will give you the daily percentage rate, which you can then use to determine how much interest you pay on your balance daily.

Here's a simple way to remember the difference between interest rate and APR: interest rate is the charge imposed by a lender to borrow money, while APR includes any other fees associated with the loan.

It's worth noting that credit card issuers often use a monthly interest rate, which is the purchase APR divided by 12. This means that a 20% purchase APR does not indicate 20% interest charged on any one bill, but rather roughly an extra 1.67% on any debt carried from one billing cycle into the next.

Credit card companies determine APR using factors like your credit history, the prime rate, and the credit card itself. A higher credit score can often help you qualify for a lower APR.

The prime rate is based on the federal funds rate, an interest rate controlled by the Federal Reserve, and can affect your credit card's APR. If the Federal Reserve raises or lowers interest rates, expect your credit card's APR to move accordingly.

Credit cards can have multiple types of APR, including purchase APR, balance transfer APR, cash advance APR, introductory APR, and penalty APR.

The APR on your credit card can vary depending on the card itself. Some credit cards have lower APRs than others.

Rewards credit cards often have higher APRs, since they offer more value. This is because the benefits of the rewards program are offset by the higher interest rate.

The APR on your credit card is determined by the credit card company, taking into account several factors.

Here are the types of APRs you might encounter on your credit card:

Balance transfer cards are a type of credit card that allows you to move some or all of your balance from an existing credit card to a new one with a low introductory interest rate.

These cards can save you money, but be aware that they typically charge fees equal to a percentage of the amount you're transferring, such as 3% to 5%.

You'll also need to consider your balance transfer APR, which is the interest charged on the balance transfer amount and may be higher than your purchase APR.

Many credit card issuers charge a balance transfer fee, and some credit cards offer a low intro APR on balance transfers that can make it easier to pay what you owe with regular monthly payments.

If you're struggling to pay your credit card balance, you may be able to temporarily avoid paying the purchase APR by working with the issuer.

You can't just ignore the APR, though - you'll need to communicate with your credit card company to see if they can offer any temporary relief.

There may be times when you can't make your credit card payments, but being proactive and reaching out to the issuer can make a big difference.

You may be able to dodge paying the full purchase APR, if only for a billing cycle or two, by being open and honest with your credit card company.

Credit card grace periods can provide some breathing room, but it's essential to understand how they work to avoid any surprises.

Credit cards can have multiple types of APR, including cash advance APR, which is the rate for credit card transactions classified as cash advances.

The cash advance APR is usually higher than the purchase APR, and it's often used when you withdraw cash from an ATM or use your credit card to get cash back at a store.

Here are some key differences between cash advance APR and purchase APR:

Your credit card APR is determined by a combination of factors. A higher credit score can often help you qualify for a lower APR, which can save you money on interest.

The prime rate is another important factor in determining your APR. This prime rate is based on the federal funds rate, an interest rate controlled by the Federal Reserve.

The credit card itself also plays a role in determining your APR. Some credit cards have lower APRs than others, and rewards credit cards often have higher APRs.

Here's a rough idea of how APRs can vary based on credit score:

This means that if you have a good credit score, you may qualify for a lower APR, which can help you save money on interest.

Cash Advance APR is a crucial aspect of credit card usage, and it's essential to understand how it works. Your credit card agreement should explain when the card issuer might adjust your rate.

A cash advance APR is a high-interest rate charged when you use your credit card to get cash from an ATM or a bank teller. This rate is usually much higher than your purchase APR, and it can range from 20% to 30% or even higher. For example, a credit card might have a purchase APR of 17.24% but a cash advance APR of 25.99%.

The cash advance APR is typically calculated using the prime rate plus an added margin set by your credit card issuer. This means that if the prime rate goes up, your cash advance APR might rise as well.

Here are some key facts to keep in mind:

It's essential to be aware of the cash advance APR on your credit card, as it can lead to high interest charges if you're not careful. To avoid these charges, consider using other options, such as a personal loan or a credit card with a lower cash advance APR.

A penalty APR is a higher interest rate that may be applied to your credit card if you make late payments or exceed your credit limit. This rate is typically higher than your regular purchase APR.

Your credit card issuer's late payment policy, outlined in your terms and conditions agreement, will specify the circumstances under which a penalty APR may be applied.

You may be charged a penalty APR if you have one or several late payments, so it's essential to stay on top of your payments.