University of Illinois Extension

Choose the Best Credit Card Interest Rate

Most U.S. consumers use credit cards. However, many don't pay attention to the interest rate on their credit cards or to the total amount of interest they pay every year.

Choosing a credit card with the lowest interest rate can save you money. Forty-six percent of all U.S. families had an outstanding balance on some type of credit card after paying their most recent bill. In 2007, the average balance for those carrying a balance rose 30.4 percent, to $7,300.

How To Find a Lower Credit Card Interest Rate

Shopping for the best credit card value can be complicated. Different issuers of national bank cards such as VISA, MasterCard, and Discover charge different interest rates. They also use different methods to calculate finance charges. Under the federal Truth-in-Lending Act, creditors must disclose the interest rate or the Annual Percentage Rate (APR). The APR measures the cost of credit as a yearly interest rate. APRs on credit cards can vary from five percent to as much as 36 percent.

If you're like most people and carry a balance on your credit card, at least sometimes, the APR can make a big difference. The following chart shows how much a $2,500 balance would cost you at different APRs if you didn't pay it off right away.

How much you'd pay in finance charges on a $2,500
balance after...

APR 6 Months 18 Months 36 Months
19.8% $245.29 $718.35 $1,374.46
14.0% $171.30 $485.40 $874.53
8.0% $ 96.64 $264.77 $448.81

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