Understanding the Difference Between Balance Transfer APR and Purchase APR: What You Need to Know
When it comes to managing debt, one of the most significant decisions you’ll make is whether to transfer your balance from one credit card to another or pay off your existing balance in full each month. However, the two options can have a considerable impact on your financial situation, with some cards offering lower interest rates than others.
Balance Transfer APR vs Purchase APR: What’s the Difference?
The main difference between Balance Transfer APR and Purchase APR lies in how long you’ll pay off the borrowed amount. When you transfer your balance to a new credit card, the introductory APR (Annual Percentage Rate) applies for a specific period, usually 18 months to 2 years. After this promotional period ends, the standard APR kicks in, which is either:
The original Purchase APR
A lower APR that may be 1-3% lower than the initial rate
For example, let’s say you have a credit card with an 18-month Balance Transfer Introductory APR of 12%. If you transfer ,000 from one card to another and pay it off in full within 18 months, your monthly payment will be approximately 67. After 18 months, the standard APR will kick in, which is 15%.
On the other hand, if you have a credit card with a Purchase APR of 12%, but you transfer ,000 from one card to another and pay it off in full within 24 months, your monthly payment will be approximately 67. After 24 months, the standard APR will kick in, which is 13%.
Real-Life Examples
To illustrate the impact of these rates, let’s consider a hypothetical example:
Credit Card A: 18-month Balance Transfer Introductory APR of 12%, ,000 balance
+ Monthly payment for 18 months: approximately 67
+ Total interest paid over 18 months: approximately 00
Credit Card B: 24-month Purchase APR of 15%
+ Monthly payment for 24 months: approximately 75
As you can see, the lower APR on Credit Card A will save you a significant amount of money in interest payments over time.
Actionable Advice
To make the most of these introductory rates, follow these tips:
Always read the fine print and understand the terms of your promotional offer
Make sure to pay off the borrowed amount in
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