How Credit Card Interest Rates Work - 4 Different Interest Rates Explained - AstroWealth Skip to main content

Do you have a credit card? If yes, you probably wonder what credit card interest rates look like. If not, now is the time to learn and apply for a credit card to help you manage your finances and build a credit score. Here’s a quick guide on all the different credit card interest rates and how they work.

Types of Credit Card Interest Rates

Have you ever read your credit card agreement? You know that 40 page document that you agree to when you accept your credit card terms and conditions? If you are vaguely recalling what we are talking about, the following terms will feel familiar. If not, we highly suggest you review your credit card agreement to understand your personal credit card. Here are some types of credit card interest rates outlined below.

Purchase Interest Rate

This is the interest rate charged on your purchase transactions if you do not pay the bill in full by the due date. With credit cards, you receive an interest-free grace period of approximately 21 days. This is calculated from your billing period end date. If you miss paying the bill at the due date, then you can be charged the purchase interest rate of approximately 19.99-24.99% depending on your card type.

To avoid incurring this interest, pay your credit card bill in full each month!

Cash Advance Interest Rate

When using your credit card to withdraw cash from an ATM or using your credit card for lottery tickets, wire transfers or gambling purposes, your credit card charges you a cash advance interest rate. This can sometimes be listed as a fee as well. Credit cards use this interest rate as a means to lower the risk on some risky transactions. The most important note with this type of interest rate is that it starts incurring the day you make the transaction and continues till the day your credit card is paid in full. If you have any balance on your credit card, this interest rate will continue to accrue. Double check your credit card agreement to understand if your cash advance interest rate is a percentage or flat-rate.

Balance Transfer Interest Rate

Due to popular demand, credit card companies now offer the ability to transfer your balance from one card to another. This feature is useful for individuals that want to move their debt to a lower-interest rate card or that don’t want to worry about paying multiple credit cards.

Promotional Interest Rate

While this is not as common lately, credit card companies are known to give promotions where for a certain duration your purchase interest rate or balance transfer interest rate can be a promotional interest rate which is lower than usual. For example, credit card interest rates could be 3.99% for the first 3 months of your credit card. Be careful with promotional interest rates for any extra fees or charges.

What can I do to lower my credit card interest rates?

If you are looking for ways to lower the interest rates accrued, here’s some great tips:

  1. Pay your credit card in full each month! You’ll never have to worry about interest rates if you follow this tip. You can use the interest-free grace period to your advantage and manage your finances effectively.
  2. Get low interest credit cards. Apply for lower interest credit cards, they can help you better manage your debt. Win-win!
  3. Avoid cash advance transactions! When possible, use your debit card to withdraw from an ATM and not your credit card.

If you are looking to learn more about credit and debt, review our Personal Finance Guides.

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