What Is Purchase Annual Percentage Rate (APR)?

Purchase APR Explained in Less Than 5 Minutes

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The purchase annual percentage rate, or purchase APR, is the rate you're charged for purchases made on your credit card. Many credit cards offer a grace period during which you can pay your full balance and avoid paying an interest cost on the outstanding balance.

The purchase APR is one of several APRs that may appear on your credit card statement. Whether you're shopping for a new card or trying to decipher your current credit card pricing, understanding the purchase APR is important for controlling your credit card costs.

Definition and Examples of Purchase APR

The purchase annual percentage rate is the rate applied to a purchase balance to calculate the finance charge for the billing period, when it applies. When you charge a purchase to your credit card and carry the balance to the next billing cycle, for example, there will be a purchase APR applied to the unpaid portion of the balance. 

  • Alternate name: Standard purchases annual percentage rate
  • Acronym: Purchase APR

The purchase APR is expressed as a percentage and is usually the first APR listed in a credit card's pricing details chart. With Chase Freedom Unlimited, for example, the purchase APR is 0% for the first 15 months, and then will range between 14.99% to 23.74% based on creditworthiness.

Depending on the credit card issuer, the purchase APR may have a fixed or variable rate.

Credit card issuers often calculate interest on a daily basis, so the purchase APR must be converted to a daily periodic rate (DPR). Depending on the card issuer, the DPR is calculated using the exact number of days in the year, such as APR / 365 or APR / 360. For a purchase APR of 15.24%, for example, the DPR would be either .0417% or .04233%

How Does Purchase APR Work?

Credit cards often have multiple categories of transactions—purchases, balance transfers, and cash advances—with APRs for each. The APRs for each of these categories may be different, depending on the credit card issuer.

The purchase APR refers specifically to the rate that's applied to a purchase balance carried beyond the grace period, which is the time between the end of the billing cycle and your due date. Paying your full balance during this grace period usually allows you to avoid paying interest on the balance.

Purchases may not have a grace period if you didn't pay your balance in full in the prior month. In addition, if you pay in full some months and not in others, you may lose the grace period for the month in which you don’t pay in full and the month after. This includes balance transfer and cash advance balances.

While the purchase APR is generally expressed on an annual basis, many credit card issuers calculate the finance charge for purchases using a daily balance or average daily balance. In this case, the APR must also be adjusted to a purchase daily periodic rate or DPR. With an APR of 15.24%, for example, the DPR would be either .0417% or .04233% depending on whether the card issuer calculates interest based on 365 or 360 days in the year.

Finding Your Purchase APR

Because some credit card issuers define a range of potential purchase APRs, you may not know your exact APR for a new credit card until your application is approved. 

Your credit history affects the APR assigned to you. Generally, the higher your credit score, the lower the interest rate you can receive.

If a credit card's purchase APR ranges between 15.49% and 21.29%, for example, consumers with higher credit scores will tend to qualify for an APR close to 15.49%. On the other hand, consumers with lower credit scores may qualify for a purchase APR on the high end of the range.

For existing credit cards, you can find your actual purchase APR and the balance subject to a finance charge on your credit card statement. Your statement will also contain a breakdown of your balances and the APR applied to each. 

With some credit cards, the purchase and balance transfer APR are the same. However, on most credit cards, the cash advance APR tends to be higher than the purchase APR on most credit cards.

If you miss two payments in a row, amounting to 60 days late, your purchase APR (and other transaction APRs) may increase to the penalty rate—the highest rate on your credit card. After you make six consecutive monthly payments on time, you may be eligible to get your APRs lowered.

Payment Allocation

When your credit card has balances with different interest rates, your credit card issuer may apply the minimum payment to any balance. Many choose the balance with the lowest rates, which is commonly the purchase balance. Anything you've paid over the minimum must be applied to the balance with the highest interest rate.

Types of Purchase APRs

A purchase APR can be fixed, variable, or promotional. Each type of purchase APR is explained in detail below. 

Fixed

When a purchase APR is fixed, it does not change regularly. Card issuers can raise the APR for existing balances only in certain circumstances, for example, if you're behind on payments by 60 days. After the first year, a card issuer can raise the purchase APR for new purchases for any reason as long as a 45-day notice and a chance to opt out of the interest rate increase.

Variable

A variable purchase APR will fluctuate periodically because it's based on another interest rate, like the prime rate, that moves with the market. 

By law, your card issuer is required to let you know how your rate is determined in the case of a variable purchase APR.

Promotional

With an introductory promotional offer—which must last at least six months—the promotional APR is applied to the purchase balance instead of the standard APR. Under a 0% introductory APR, purchases won't be charged any interest during the promotional period, even when you don't pay your balance in full. 

After the introductory period ends, the regular purchase APR is effective for any existing balance and new purchases. In all cases, credit card issuers are required to disclose all the APRs applicable to a credit card and to let you know how you can avoid paying interest on purchases. 

Key Takeaways

  • The purchase annual percentage rate, or purchase APR, is the rate applied to any purchase balance subject to finance charges.
  • Credit cards may have different transaction categories, each with varying interest rates.
  • A specific cardholder's purchase APR is based on the APRs offered for the credit card and the cardholder's credit history.
  • The purchase APR assigned at card opening may change based on the card terms, consumer payments, and regulations.