The Balance Transfer APR vs Purchase APR: Understanding the Difference
When it comes to financing your purchases, managing credit card debt can be overwhelming with various terms and conditions on offer. Two of the most commonly discussed credit cards are the balance transfer APR (Annual Percentage Rate) and purchase APR. While both rates aim to simplify payments, they differ significantly in their impact on your monthly expenses.
Balance Transfer APR: A one-time advantage
The balance transfer APR is designed to make it easier for you to pay off a high-balance card quickly by transferring that amount to the new credit card. The goal is to save money on interest charges by transferring the old balance to a new, lower-interest rate card. For example:
Suppose you have ,000 in debt with an original APR of 18%. You transfer this amount to a new card with a 0% introductory APR for 12 months.
During this period, your monthly payments would be significantly reduced, saving you around 00 per month.
However, after the promotional period ends, the new balance transfer fee (usually 3-5%) and any remaining balance will accrue interest at the regular APR. In this scenario:
Assuming a bash introductory APR for 12 months, your monthly payments might be around 0-0.
After 12 months, you’ll need to pay off the entire ,000 balance at the original APR of 18%, resulting in approximately 00 in interest charges.
Purchase APR: The ongoing cost
The purchase APR is a flat rate that applies for all transactions made on your credit card. This means you’ll be charged interest on every single purchase, even if it’s a small one. For instance:
Suppose you make a 0 purchase on the new card.
If the purchase APR is 21%, you’ll be charged an additional 0 in interest for this transaction.
As time passes, the ongoing cost of your purchases will add up quickly, and the difference between the balance transfer APR and purchase APR can become significant. To illustrate this, consider:
Let’s say you pay a total of ,000 on your credit card.
If the balance transfer APR is 0% for 12 months, you’ll save around 00 in interest charges.
* After the promotional period ends, if you still carry a balance from the original APR, your monthly payments might be around 0-0.
Tips to minimize the difference
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