What Does APR Variable Mean on Credit Cards?

By Sabah Karimi

  • Overview

    Regarding credit cards, "APR variable" means that the interest rate you're charged can change. Every credit card company charges its own set of fees, surcharges and interest rate for their cardholders. These fees and rates vary significantly between credit card companies, but all of them calculate their interest rates based on an annual percentage rate (APR). If the company uses the variable APR method, the interest rates charged change when the Prime Lending Rate changes.
  • Significance

    APR variable credit cards accumulate interest based on a fluctuating interest rate and these types of agreements have both benefits and disadvantages. Cardholders are bound by agreements that require them to repay their credit card balance plus interest, but the minimum principal balance and minimum payments can increase significantly when the interest rate increases, and be reduced when the interest rate decreases.
  • Function

    Variable APR rates are typically calculated using the current prime rate plus the Federal Reserve Discount Rate, or the Treasury Bill Rate. Since these indexes can change along with the state of the economy, the interest rate on a variable APR credit card also fluctuates. Information about the type of calculation used by the credit card company is included in the cardholder agreement and on the credit card application.


  • Considerations

    Since variable APRs are dependent upon economic conditions, the actual interest rate paid can be difficult to predict. Rising interest rates can make it difficult for cardholders to make monthly payments that actually help pay down the credit card balance. On the other hand, falling interest rates reduce minimum payments and may make it easier to pay down the balance.
  • Benefits

    Variable APR credit cards are typically offered to consumers at very low introductory rates so that the customer either opens a new account or transfers balances from other credit cards onto the new account. If the cardholder can pay off most of the credit card with the low interest offer, they may be able to save some money on interest charges over the long term. Variable APR credit card rates that stay below the national average of fixed rate APRs are most beneficial to credit card account holders, but there is an inherent risk that the interest rate may rise significantly because of market conditions.
  • Disadvantages

    While variable APR credit cards can have attractive low rates when the prime rate goes below the average, there are some disadvantages of this type of credit card agreement. When the prime rate increases rapidly, the APR will increases at the same pace. Credit card companies that offer variable APR credit cards are not required by law to notify cardholders of the rate change; the rates can fluctuate month to month, and the interest will continue to accumulate on the credit cardholder's balance. All credit card companies are required by law to provide information about their rate calculations; this information is available by contacting the customer service department, or reviewing the 'Terms and Conditions' on the application or credit card agreement.
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