At a Glance

Credit cards typically have interest rates tied to any outstanding balance you carry. The issuers use these interest charges to pay for any benefits your card has and to pay for their operating costs.

Depending on your cardholder agreement, you’ll usually have either a Fixed or Variable APR (Annual Percentage Rate) throughout the lifespan of your account. The type of rate you have can mean a world of difference for how much you’ll pay in interest for any purchase you don’t pay off before the statement closing date.

In this article, you’ll learn:

Difference between fixed vs. variable APR credit cards

Generally speaking, fixed rate cards will have one standard interest rate for all purchases, while variable rate cards will usually have a range that your APR will be in that depends on the current market standards.

Fixed APR Variable APR
Same interest rate. Rate fluctuates based on the market.
Based on your credit history and promotional offers. Based on the Federal Reserve’s index rate.
Credit card issuer is required to notify you before rate changes. Rate can change at any time without notification.

What is a fixed APR?

A fixed APR is an interest rate that doesn’t change over a specified period of time. You’ll most often see this on loans with a long repayment period, like student loans, auto loans, or mortgages, but some credit cards will offer this as an option for qualified applicants, too.

How does a fixed APR credit card work?

Fixed rate APR cards have a rate determined at the time you open your card that doesn’t change. Most major credit card issuers won’t have permanent fixed APR cards, but may have a promotional fixed rate offer (i.e., 0% APR on balance transfers for 12 months) on a variable rate instead.

Your interest rate can change if the issuer deems it necessary, but they’ll need to notify you in writing at least 45 days before the change happens. Once the 45 days pass, any new purchases or balance transfers will be charged the new rate; purchases or balance transfers made before the cut-off will still have your old rate unless it was a promotional offer that says otherwise.

Pros and cons of using a fixed APR credit card

Pros

  • Single interest rate, no matter the market conditions.
  • Usually lower than variable rates.
  • Your card issuer is required to notify you of any rate increase or decrease at least 45 days before the change.

Cons

  • Hard to find.
  • Tend to be promotional offers that expire after a certain period of time.
  • If the market rate goes under your fixed rate, you’ll pay more than someone else would with a variable rate card.
  • You’ll most likely need excellent credit and a good payment history to qualify.

Where to get a fixed APR credit card?

Long-term fixed-rate APR cards are hard to find as issuers risk losing money when the market fluctuates, so you’ll need to search smaller banks and local credit unions to see if they offer their clients fixed-rate options.

What is variable APR?

In the U.S., variable rate APRs are tied to the current market rates set by the Federal Reserve, known as the “index” or “prime” rate. Variable rates are the more popular option for credit card issuers to use and are readily available to anyone looking for a card, regardless of their credit score.

How does a variable APR credit card work?

Variable APR credit cards will typically have a range your interest rate will be in that’s based on current market conditions and your credit score. When the prime rate goes up, your interest rate will typically rise on your next statement, meaning you’ll pay more for any balance you carry on your card.

However, when the prime rate goes down, your interest rate will, too, as long as you’re in good standing with your card account.

Pros and cons of variable APR credit cards

Pros

  • Easy to find.
  • Rates can go down if the market rates do, too.
  • Temporary fixed-rate promotional offers (like 0% APR for 12 months) will often be available, helping you save even more.

Cons

  • Your rate can increase, costing you more money on any debt you carry.
  • Harder to budget for.
  • Your issuer isn’t required to notify you ahead of time.

How often do variable interest rates change?

Variable APRs are tied to the prime rate set by central banks around the world, so they tend to fluctuate based on the market conditions of your country. If the market changes and prime rates are affected, you’ll typically see your interest rate change the month after.

How to protect yourself from a rising variable APR?

Pay off your debt before your statement closes – Purchases or balance transfers that are paid off before the statement closing date are not charged interest.

Transfer outstanding balances to a 0% APR card – If you have any purchases you can’t pay off, consider consolidating your debt onto a 0% APR balance transfer card. These cards will have a promotional period where you won’t be charged interest as long as you pay off the balance before the promotion expires. Typically, you can expect a small 3% – 5% balance transfer fee, but this small charge is more than worth the savings you’ll get by not paying the standard market rate.

FAQs

Credit card companies can raise your interest rate under certain circumstances, and it’s important to be aware of these situations. Here are some common reasons why a credit card company may raise your interest rate:

  • Variable APR: If you have a credit card with a variable interest rate, the issuer can raise or lower your rate in response to changes in a specified benchmark rate (often tied to the prime rate). This can happen periodically, and the terms should be outlined in your cardholder agreement.
  • Introductory rate expiration: If you have a credit card with a promotional or introductory 0% APR, the interest rate can increase when the promotional period ends. This is typically disclosed when you apply for the card and in the terms and conditions.
  • Missed payments: If you miss a payment or make a late payment, your credit card company can increase your interest rate. This is often done under the “penalty APR” clause in your cardholder agreement. Once you demonstrate a pattern of on-time payments, the issuer may consider reducing the rate back to the original rate.
  • Universal default: In the past, some credit card companies used a practice known as “universal default,” which allowed them to increase your interest rate if you were delinquent on any credit obligation, not just the credit card in question. However, this practice has become less common and has been regulated in some places.
  • Default on card terms: If you violate the terms of your credit card agreement (e.g., exceeding your credit limit, using the card for prohibited purposes), the credit card issuer may increase your interest rate as a penalty.
  • Risk assessment: Credit card companies regularly review their customers’ credit profiles. If your creditworthiness declines significantly (e.g., lower credit score, increased debt, late payments on other accounts), the issuer may raise your interest rate as a result.

A 24.99% variable APR is relatively high, and it is considered an expensive interest rate, especially for credit cards. Credit card APRs can vary widely, and generally, lower interest rates are preferable because they result in less interest expense when carrying a balance.

The best credit card is the one that suits your needs. Fixed-rate cards are good to have but extremely hard-to-find as compared to variable APR cards. Variable APR cards will typically have better perks and rewards for cardholders, including promotional rate offers for new purchases or balance transfers, and are easier to find, even if you have poor credit.

If you need a fixed-rate APR credit card, look for smaller banks or locally-owned credit unions, as these may be your best option. However, your best bet may be to instead look for a fixed-rate personal loan or a variable APR credit card with a 0% APR promotional rate instead.