Does APR Matter if You Pay on Time?

does apr matter if you pay on time

Does APR matter if you pay on time? That depends on your overall balance. If you completely pay off your balance before your next payment due date, you may be able to avoid interest charges. However, if you are carrying a balance after you make your payment you may accrue interest on that remaining amount. 

Interest rates and APR are among the most important factors in getting personal loans or other lines of credit. The higher the interest rate, the more borrowers are going to have to pay toward their outstanding balances.

The answer depends on the type of line of credit you receive. While borrowers may be able to avoid paying APR on credit cards, it’s almost unavoidable with traditional installment loans. Here, you will learn about the different types of credit card interest rates and APR, how they may affect your finances, and how you can save money on both!

What Are the Different Types of APR?

With just about any type of loan or line of credit, borrowers will end up paying interest. Below are examples of some of the most common types of interest rates and APR you may come across with credit cards, loans, and other lines of credit.  

Fixed APR

A fixed APR is a steady, consistent annual percentage rate that does not change during the terms of a loan or billing cycle. Fixed APRs are convenient for people who are new to budgeting because it makes planning payments easy and predictable. 

Variable APR

Variable APRs are changing annual percentage rates. With a variable APR, the amount of interest borrowers are charged may vary based on current market conditions. Variable rates can be convenient because they can save borrowers money on some payments, but they may also cause them to have to contribute more towards other payments. 

Purchase APR

A purchase APR refers to the general APR that is applied to most credit card purchases. Purchase APRs are the most common type of interest rate and are associated with just about every credit product. 

Balance Transfer APR

Balance transfer credit cards were designed to help consumers consolidate credit card debt and potentially save money on interest charges. However, consumers usually have to pay interest on the total amount of their balance transfer. So, before you apply for a balance transfer, make sure the decision will still be worth it after paying interest and other charges. 

Penalty APR

Unfortunately, borrowers usually have to pay interest on late fees or other penalties when they have credit cards or loans. These rates are also almost always higher than the borrower’s standard APR or interest rate. 

Cash Advance APR

If your card comes with the ability to take out cash advances, it’s important to note that the interest rate on a cash advance is often higher than the interest for a regular credit card purchase. 

Introductory APR 

Many cards come with a special introductory period, also referred to as a grace period, where borrowers have a 0% APR for a set amount of time. 

APR and Paying On Time

AspectsDetailsRelevance to APR
Credit Utilization RatioThe amount of credit you’re using compared to your credit limit.Lower utilization can lead to a better credit score, potentially leading to lower APR offers in the future.
Credit Score ImprovementTimely payments contribute to a better credit score.A higher credit score can give you negotiating power for lower APRs on future credit products.
Rewards and BenefitsMany cards offer rewards like cashback, points, or miles.Paying on time maximizes rewards without accruing interest, making APR less of a concern for reward maximization.
Credit History LengthThe duration of your credit history.A longer history with on-time payments can positively impact creditworthiness, potentially affecting future APRs.
Different APR for Types of TransactionsSome cards have different APRs for purchases, cash advances, and balance transfers.Knowing these differences is crucial, as some transactions might accrue interest despite timely payments.
Annual FeesSome cards charge annual fees.Even if you pay on time and avoid interest, annual fees can affect the overall cost-benefit of a card’s APR.
Interest-Free Grace PeriodThe period during which no interest is charged on new purchases.Understanding the length of this period is key, as interest accrues after it ends, regardless of on-time payments.
Impact of Late PaymentsLate payments can affect APR and credit score.Even one late payment can result in penalty APRs, affecting future costs even if subsequent payments are on time.
Credit Line IncreasesPeriodic review for credit line increases.Consistent on-time payments can lead to credit line increases, indirectly impacting credit utilization and APR.
Introductory APR PeriodsSpecial low or 0% APR periods for new accounts.Utilizing these periods effectively can reduce costs, but it’s important to plan for post-introductory APR rates.
Disclosure: The information in the chart is for general informational purposes only and is not financial advice. APR and credit terms vary by individual agreements and issuer policies. Consumers should consult their agreements and financial advisors for specific guidance.

How Is Credit Card Interest Determined? 

When you apply for a credit card, lenders will pull a credit report to take a look at your credit history and score. Typically, borrowers with a higher credit score are eligible for lower interest rates on credit cards, while low-credit borrowers may only qualify for rates on the higher end. 

Can My APR Get Higher?

It’s important to note that credit card issuers must give consumers at least 45 days notice if they plan to change their APR. This time period gives consumers time to opt-out of their credit card account should they not want to accept their new APR. If consumers chose to close their credit card account due to an APR change, they would still be responsible for making credit card payments towards any outstanding balance they may still have. 

There are several reasons why a credit card issuer may decide to raise a consumer’s APR or interest rate, including: 

  • Missing a payment. 
  • The promotional period is ending. 
  • Credit score drop. 
  • Laws and legislation. 
  • Credit card procedures and policies. 

Missed Payments

If you miss a payment on your credit card, your issuer will most likely increase your interest rate. This increase is supposed to serve as a motivator to make your credit card payments on time and avoid accruing more interest and dealing with late fees. 

End of Promotional APR Period

Many credit card companies offer consumers introductory deals that come with a 0% interest or a highly decreased interest rate. When that promotional period ends, consumers may see their APR and interest rate increase. 

Significant Decrease in Credit Score

Unfortunately, if you are suffering financially and experience a drop in your credit score, credit card companies may end up increasing your rates. Since your creditworthiness has been altered, lenders may feel the need to bump up your rates to cover their potential financial risk. 


Federal and state laws regarding interest rates and APRs may also play a role in a consumer’s credit card rates changing. For example, your card issuer may increase your interest rate to match the prime rate that is mandated by the federal government. 

Problems With Your Credit Card Issuer

If your card issuer is suffering financially, they may be allowed to raise your interest rates to help cover their losses. Credit card companies usually retain the right to alter interest rates and APRs whenever they want. 

Can My APR Get Lower?

If your credit card interest rate was increased due to a missed payment or credit score drop, you might be able to have your rate lowered after you get your finances back on track. Do your best to establish a steady payment history along with working on building credit, and you will have a much easier time negotiating lower credit card interest rates. 

What Is the Credit CARD Act?

The Credit Card Accountability Responsibility and Disclosure Act, also referred to as the Credit CARD Act, is essentially an amendment to the following policies: 

  • Truth in Lending Act.
  • Electronic Fund Transfer Act.
  • Fair Credit Reporting Act.
  • Mortgage-Related Provisions of the Omnibus Appropriations Act of 2009.

The Credit CARD Act, established in 2009, was created for the purpose of regulating the procedures, disclosures, fees, charges, penalties, and protection of minors when it comes to credit card companies.1 This act also works to regulate terms and fees on gift certificates, store credit cards, and prepaid credit cards. Furthermore, the Credit CARD Act requires transparency regarding FTC rulemaking and also gives consumers access to free credit reports from each major credit reporting agency. 

Tips for Saving Money on Interest Rates

Being smart about how you handle your credit card debt can make a huge difference in how much of an impact interest rates will have. Below are a few tips on how consumers can save money on interest rates for credit cards, installment loans, and essentially any line of credit.  

Try Not To Carry a Balance on Your Card 

One of the most impactful steps you can take to avoid interest charges and manage your credit card wisely is not to carry a credit card balance. When you pay off your credit card balance completely each month, there won’t be any funding on which lenders can charge interest. Not only will you be keeping a pristine credit utilization ratio by fully paying off your balance, but you also won’t have to deal with a credit card APR! 

Make Your Payments on Time

As you pay back your loans or credit balances, be sure to make all your payments on time. Not only will maintaining a consistent payment history help you avoid late fees and other extra charges, but you can also save money on interest rates as well! Since interest charges are typically based on the borrower’s current balance, the lower the balance is, the less funding there is to charge interest on. 

Pay More on Your Loans When You Can

When you are carrying a balance on your card or paying back an installment loan, try to contribute more than the minimum payment required. By paying more each month, you will save money on interest charges and pay off your balances quicker. 

Find a Card With an APR Grace Period

Another great way to save money on interest rates and APR is to find a card that comes with an APR grace period. With a grace period, borrowers aren’t charged interest for a set period of time. After the grace period ends, borrowers are charged interest on any balances they carry. 

If you pay off your remaining balance before your card grace period is over, you won’t have to worry about paying interest! 

FAQ: Credit Card APR and Timely Payments

What happens to my credit card’s APR if I always pay my balance in full and on time?

Paying your balance in full each month means you typically won’t accrue interest on purchases. However, your credit card’s APR remains a factor for other transactions like cash advances or balance transfers, where interest may accrue immediately.

Does making more than the minimum payment affect my APR?

While making more than the minimum payment doesn’t directly change your APR, it reduces your principal balance faster, thereby decreasing the total interest you’ll pay over time.

Can timely payments improve my chances of getting a lower APR in the future?

Yes, consistently making timely payments can improve your credit score, which in turn can make you eligible for credit cards or loans with lower APRs in the future.

How does a balance transfer affect my interest accrual if I pay on time?

Balance transfers often come with a promotional APR for a set period. If you pay off the transferred amount within this period, you can avoid additional interest. However, if not paid off in time, the remaining balance will start to accrue interest at the standard APR.

If I never miss a payment, can my APR still increase?

Yes, your APR can increase due to factors beyond your payment history, such as changes in the market interest rates or changes in the terms by the card issuer.

Does APR matter for purchases if I always pay my bill before the due date?

If you always pay your full balance before the due date, the APR may not significantly impact your purchases since you won’t accrue interest on them. However, it’s still important to know your APR for situations where you can’t pay the full balance.

How does a 0% introductory APR work, and what happens when it ends?

A 0% introductory APR means you won’t be charged interest on purchases and/or a balance transfer during the promotional period. Once this period ends, any remaining balances will start accruing interest at the regular APR rate.

Are there any benefits to having a card with a high APR if I always pay on time?

Even with a high APR, if you pay your balance in full and on time, you can enjoy the benefits of the card, like rewards, cashback, or travel perks without paying interest.

Can I negotiate a lower APR if I have a history of on-time payments?

Yes, a strong history of on-time payments can be a good basis for negotiating a lower APR with your card issuer.

Does APR apply to all types of credit transactions?

APR applies differently across various transactions. For purchases, you can avoid interest by paying in full each month. For cash advances and balance transfers, interest typically accrues immediately, regardless of your payment history.

A Word From CreditNinja on APR and Interest Rates

Although you may not be able to avoid interest charges completely, you can certainly lower their impact by making consistent payments, contributing more towards paying off debt when you can and working on strengthening your credit report.  Be sure to check out the CreditNinja blog for more information and resources on interest rates, online loans, and how to handle your finances!


  1. Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) | Federal Trade Commission
  2. How to Avoid Paying Credit Card Interest | Experian
  3. What’s the Average Credit Score in Each State? | Equifax
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