Variable APR on a Credit Card – What Is It?

Thursday, August 22nd, 2019
Updated: August 22nd, 2019
The content is accurate at the time of publication and is subject to change.

Even if you are new to the world of credit, you, probably, noticed that some cards’ terms contain the word “Variable” relative to interest rates. Most applicants tend to never pay attention to this addition and have no haziest notion about its exact meaning. However, credit cards with a variable rate are the majority. So what does variable APR mean?

What Does Variable APR Mean?

Variable APR, unlike fixed APR, implies its possible change over time. But if you now frantically started looking for your credit card agreement and found the phrase “variable APR” there, take it easy. It doesn’t mean the issuer will change the rate at their own sweet will.

Your card APR is based on a base lending rate added to a margin that issuer sets after checking your creditworthiness. That base rate in most cases is a prime rate or the interbank rate published monthly in the Wall Street Journal, which banks and credit unions charge when lending money to each other. The prime rate, in turn, is founded on the federal funds rate.

Why Can Variable APR Change?

When the federal funds rate undergoes changes, it triggers a chain reaction affecting the prime rate and then credit card variable APRs. Thus, if the Federal Reserve is going to raise rates, it will most likely lead to a variable APR increase and higher monthly payments on your credit card thereafter.

Unfortunately, in such situations, credit card issuers don’t specially inform their cardholders since the card terms that they accepted earlier presuppose the possibility of these changes. There’s nothing for it but to thoroughly examine your monthly card statements to discover changes.

What Type of APR Can Be Variable?

When you are looking for a new credit card, you probably check out purchase APR, the rate accrued to purchases made with the card, in the first place. But it’s not the only APR that can be variable. The variability may apply to balance transfer APR, the interest charged for balances transferred to the card from other accounts, and cash advance APR taken for withdrawing cash from the card.

Bottom Line

All in all, variable APR is something that you should take into consideration in order to control your expenses, but you definitely have no reason to care too much. The reality is, it is quite hard to find a credit card with a fixed rate now. Still, striking rate changes do not occur every month. For example, the Federal Reserve raised the fed funds rate from 2.25% to 2.5% in December 2018, at its March 2019 meeting, they decided to keep rates at this level through 2021, but in August 2019 the rate was even lowered back to 2.25%.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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