A 2 percent difference in the annual percentage rate, or APR, between two credit cards could cost you a decent chunk of money, or it could cost you nothing. Taking a card with a higher interest rate could even save you money. It all comes down to how you use your credit card and what other costs it has.
What 2 Percent Costs
Given a choice between two cards -- one with an 18.99 percent APR and one with a 20.99 percent APR -- the second one will cost you more in interest. Carrying a $1,000 balance on a card with 18.99 percent interest means you'll pay about $189.90 per year. The same balance on a card with a 20.99 percent interest rate costs $209.90 per year. The more you owe, the more the 2 percent difference will cost you.
When Interest Doesn't Matter
Your credit card's interest rate doesn't matter if you always pay off the balance before interest is charged. Credit cards typically have a grace period -- a set amount of time in which you can use your card, pay it off and not have to pay any interest. Paying your card off during your grace period gives you the benefits of having a credit card without the cost of the high interest.
Which Interest Rate
Credit card interest rates can be a bit complicated. Some cards offer promotional interest rates to get you to sign on. For instance, if you have a choice between two cards -- one that offers 1.99 percent APR for six months and another that offers 3.99 percent interest for six months -- the first one might look cheaper. However, if its regular nonpromotional interest rate is higher, it could end up costing you more over the long term.
Rates and Fees
Before jumping on a card offer, read the fine print. Credit cards don't only make their money off interest. They may also charge you fees. For instance, a card with a 13.99 percent APR that has a $39 annual fee could end up costing you more than a 15.99 percent card with no fee. If you don't carry a balance, you still pay the fee to the low-rate card, while you don't pay any interest or fee to the high-rate card. With a $1,000 balance, you pay the $39 fee and $139.90 in interest on the low-rate card, but you pay $19 less to the higher-rate card, as the only cost is the $159.90 in interest.
- The Simple Dollar: Interest Rates Don’t Matter if You Don’t Carry a Balance -- Some Thought on the Cash-Only Debate
- Nolo: What Is a Credit Card Grace Period?
- Bank of America: Basic Facts About APRs
- MyFICO: Is a Lower Rate Worth the Annual Fee?
- Consumer Compliance Outlook. "An Overview of the Regulation Z Rules Implementing the CARD Act." Accessed Feb. 6, 2020.
- Consumer Financial Protection Bureau. "When Can My Credit Card Company Increase My Interest Rate? What Can I Do to Get the Rate Back Down?" Accessed Feb. 6, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.