Balance Transfer Apr Vs Purchase Apr: What You Need To Know

**Understanding Balance Transfer APR vs Purchase APR: A Financial Guide**

When it comes to managing debt, one of the most significant decisions is choosing between a balance transfer credit card’s Annual Percentage Rate (APR) and a personal loan or credit card’s Purchase APR. Both types of credit cards can be effective tools for paying off high-interest debt, but they work in different ways and have distinct characteristics.

**Balance Transfer APR**

A balance transfer credit card’s APR is designed to help you pay off outstanding balances on your existing credit card at 0% interest for a promotional period (usually 6-18 months). This means that if you carry a balance of $1,000 or more on a credit card with an introductory APR of 10.99%, for example, the APR will be 0% during the promotional period. After the promotional period ends, your regular APR will kick in, which can be significantly higher than 0%.

**Purchase APR**

A personal loan or credit card’s Purchase APR is designed to charge interest on your outstanding balance at regular intervals (e.g., monthly). This type of credit card typically has a fixed APR for all balances, eliminating the promotional period. If you carry a balance of $1,000 or more on a credit card with a Purchase APR of 23.99%, for instance, the APR will be 23.99% per annum.

**Real-World Examples**

Let’s consider two examples to illustrate the difference:

* A person buys a new car and takes out a balance transfer credit card with an introductory APR of 10.99%. They pay off $5,000 in 12 months, earning interest only on that amount.
* After the promotional period ends, they’ll be charged an APR of 18.49% for their remaining balance.
* A person takes out a personal loan from the same credit card issuer with a Purchase APR of 23.99%. They carry a $2,000 balance and make regular payments, earning interest only on that amount.

**APR Figures**

Here are some common APR figures to keep in mind:

* Balance transfer credit cards: 0% – 18% (e.g., Chase Sapphire Preferred: 15.49% APR for the first 60 months)
* Personal loans: 6-24% APR
* Credit cards: varies depending on the issuer and individual circumstances

**Actionable Advice**

To make informed decisions, consider