How Credit Card Interest Rates Affect Your Spending Habits

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Changes in credit card interest rates greatly impact consumer spending. You may see changes in your spending habits based on current interest rates, anticipated rate changes, and your financial outlook.

What are credit card interest rates?

The Consumer Financial Protection Bureau (CFPB) defines interest as the cost of borrowing money.

Credit card interest is usually listed as a yearly rate. This is known as an annual percentage rate (APR). However, a key difference between interest and APR is that APR may also include other costs.

For example, APR may also feature application fees, administrative fees, and other expenses.

Do you have to pay credit card interest?

Consumers need to pay any credit card interest they incur.

For most credit cards, you can avoid paying interest if you cover your complete balance by the monthly due date.

If you don’t make that full payment at the end of the month, you’ll need to pay interest. Note that interest rates may vary based on a number of factors.

Why do interest rates fluctuate?

APR is generally tied to the prime rate—or the rate lenders use for credit cards, mortgages, and car loans. When the Federal Reserve adjusts the federal funds rate (the interest rate banks charge one another), this can impact your credit card APR.

Your APR may also increase if:

• You don't pay your credit card bill on time.
• Your introductory APR has expired.
• Your credit score has dropped.

Now let’s talk about how credit card interest rates influence spending.

Do higher interest rates lead to more spending?

Higher interest rates typically lead to more saving than spending.

Lower interest rates mean that it’s cheaper to borrow money. Higher interest rates, meanwhile, make borrowing money more expensive.

For this reason, consumers tend to be more cautious in a high-interest-rate environment.

If you’re curious about your credit card’s interest rate, take a look at your account disclosures and monthly credit card statement. These documents will outline everything you need to know—and give you the information you need to adjust your spending.

Learn more about credit card interest rates

Please contact us with questions or for more information on how credit card interest rates can influence spending.