How to Compare Credit Card Interest Rates

As you drive down the street, it's pretty easy to compare the price of gas between different service stations. Every gas station displays its current price per gallon for each grade of fuel, and you know that it will always be the price that you'll pay at the pump.

But unfortunately, it's not as easy to compare credit cards interest rates. You won't find these rates on large signs outside of your bank, and you'll even have to search a little to find all of the rates online. And when you do find a card's terms and conditions online, you'll see several interest rates, each for a different type of balance.

However, some websites offer ways to compare some of a credit card's interest rates, but it's not easy to compare all of the different types of interest rates that a credit card will have. You can start by picking a few of the cards you are interested in, and then find all of the different rates and fees associated with that offer.

Where You Can Find Credit Card Interest Rates

When you're shopping online for a new credit card, you need to look for a link to its "terms and conditions" which is sometimes labeled something like "rates and fees." By law, financial institutions are required to provide this information in a standardized table called a "Schumer Box" named after the congressman responsible for this legislation. In fact, even the size of the typeface is regulated, so that credit card issuers can't bury this important information in fine print. The very first part of this table will be titled Interest Rates and Interest Fees, and it will have several sections.

Schumer Box Example

The Types of Credit Card Interest Rates

Purchase Annual Percentage Rate

At the top of this table will be the interest rate for purchases, often referred to as the "Purchase Annual Percentage Rate (APR)". This is the interest rate that applies to all the purchases that you make with your card. With many credit cards, the first number you see will be a promotional rate, which is only available for a limited amount of time. For example, a credit card may offer "0% Intro APR for the first 15 billing cycles that your Account is open." Below that introductory rate, it will then show the standard interest rate for purchases, which only applies to your existing balance after the introductory rate expires.

Balance Transfer Annual Percentage Rate

Beneath the purchase rate you see will see the rate for balance transfers, also called the "Balance Transfer APR." This is the rate that will apply to any balance that you transfer from another credit card. Here as well, you could have a 0% introductory rate, followed by a standard rate.

Cash Advance Annual Percentage Rate

Next will be the Cash Advance APR, which is the standard interest rate that applies to any cash you access through an ATM or bank, and some other cash-like transactions.

Penalty Annual Percentage Rate

A penalty APR is a much higher interest rate that only applies when you make a late payment. A card's terms might list a Penalty APR, and explain when it would apply. Rather than trying to compare penalty interest rates between cards, it's best to try to avoid ever being charged a penalty interest rate to begin with. But if you feel that you may still incur the penalty interest rate, then you can look for one of a growing number of cards that no longer have penalty interest rates at all.

Specific Interest Rates Versus Ranges of Rates

When it comes to a card's standard interest rate, or APR, some credit cards simply offer a single number that makes it very easy to compare. When a single rate is listed, all account holders will receive that rate once their application is approved.

But increasingly, many credit card issuers are listing a range of rates, along with the explanation that the rate you receive will be based on your creditworthiness when you open your account. For example, a card may offer a standard interest rate for purchases of 13.99% - 23.99%. This means that if you have an excellent credit history, then you might qualify for a rate as low as 13.99%, while those with fair or average credit may receive a rate as low as 23.99%.

You might also see a range of rates, rather than a single APR, for balance transfers and cash advances too. Finally, there are some cards that might offer three or four possible rates, with the one you receive being dependent on your creditworthiness when you applied.

How to Compare Credit Cards That Only Specify a Range of Interest Rates

The problem with credit cards that offer a range of interest rates is that you'll never know which rate you will receive until after you've been approved for the card. But if you're comparing two cards that offer a range of interest rates, then you'll typically receive a lower interest rate from a card that offers a lower range of rates than a competing card, as your creditworthiness will determine what rate you receive within the range.

For example, a card may offer rates between 13.99% and 19.99% if you have good, but not excellent credit, then you might expect to receive a rate in the middle of perhaps 16.99%. However, you would probably receive a lower rate from a competing card that offers rates between 10.99% -16.99%.

Variable Rates

Years ago, credit card issuers marketed products with so-called fixed rates. However, card issuers were able to increase these rates at their discretion, which was seen as deceptive. In response, the CARD Act of 2009 prohibited card issuers from raising rates on cards that promised a "fixed rate." As a result, nearly all banks and credit unions now offer rates that are called variable interest rates, rather than fixed. These rates can rise and fall with the Prime Rate, which is based on the federal funds rate set by the Federal Reserve Bank. This means that the interest rates for nearly all credit cards can potentially rise or fall based on unpredictable monetary policy changes. Fortunately, these changes are historically infrequent and are usually just a quarter of a percentage point.

Bottom Line

About half of all Americans who use credit card will incur interest rates by carrying a balance, at least some of the time. For these people, it's important to compare interest rates between different credit cards before choosing which one to apply for. Finding the lowest credit card interest rates will never be as easy as spotting cheap gas, but by understanding where to find the rates, and how to compare them, you can choose the best credit card for your needs.

Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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