How do fixed APRs and variable APRs differ?

Fixed vs. variable APR

When comparing the various credit card offers available online, you may have stumbled across the terms "Fixed APR" and "Variable APR." If you are unfamiliar with the way credit works, the difference between these two terms can be a little confusing.

In theory, a fixed APR is an annual percentage rate that is stable, or does not change, while a variable APR is an annual percentage rate that varies, or fluctuates up or down. Fluctuations depend on the current interest rate market or other factors set forth by the credit card issuer. Variable APR’s are often tied to the current prime rate, which is a commonly used interest rate used by banks at any given time. For example, a credit card can have an APR of Prime + 5%, which would equal the current prime rate plus 5%. So, if the prime rate goes up or down, so does that card’s APR.

Fixed interest credit cards do not necessarily remain the same interest rate forever, as market fluctuations make it is unrealistic to think that a credit card company will settle on one interest rate for their cards and never change.

However, a fixed APR tends to stay more constant than a variable APR. The interest rate on a fixed APR credit card can increase when overall interest rates go higher, but change is not automatic and is usually accompanied by advance notice. Credit card with variable APRs, on the other hand, can change interest rates more often and often without any prior notification.

Occasionally, you can find a credit card that offers a fixed APR for life on a certain balance. For example, you may be able to find a credit card that offers a 6.9% fixed APR for life (until the balance is paid in full) on all balance transfers made during the first month of card membership.

When you are shopping for a credit card, it is a good idea to look for fixed interest rates as long as those fixed rates are low compared to all the other offers you find. It may not remain that same interest rate for as long as you have the card, but at least there will not be as many fluctuations as with a variable APR card.

For more information on this topic, see Fixed APRs versus variable APRs.