When making new purchases on a credit card, the interest rate you are charged can significantly impact the overall cost of borrowing. If you plan to carry a balance on your card, it's essential to consider the APR (Annual Percentage Rate) associated with new purchases. A lower APR can save you money on interest charges and reduce the cost of carrying a balance over time.
What to consider when carrying a purchases balance on a credit card
- Promotional Period: Look for cards offering a 0% APR promotional period on new purchases balances. Consider the length of this period, as a longer period of no interest gives you more time to make interest-free payments (reducing overall interest costs).
- Purchases APR: After the promotional period ends, the balance (on the new card) will accrue interest at the regular APR.
- Purchases APR vs your current card's APR: Compare the APR of your current credit card with the APR offered by the new card. A lower APR on the new card will likely mean that carrying a balance on the new card will result in less, or lower, interest payments than on your current card.
- Credit Limit: Ensure the new credit card has a sufficient credit limit to accommodate any balance you might accrue.
How Crunchly Evaluates and Considers Balance Transfers
Payoff method
How you plan to pay off new purchases you make on your credit card can play a big role in determining how much interest you end up paying. Make a selection which best represents how you plan to make payments on your new card:
Credit Card Search Settings
- Pay full amount each period, carry no balance: You plan to pay off the full amount of your new purchases each billing cycle, avoiding any interest charges.
- Pay off most (95%) new charges each period: You plan to pay off most of your new purchases each billing cycle, but may carry a small balance (up to 5% of the total) to the next period.
- Make only minimum payments: You plan to make only the minimum payment required each billing cycle, carrying a significant portion of your new purchases balance from month to month.
Current APR
Credit Card Search Settings
Input the APR rate you currently have with your existing credit card. Knowing this rate lets you effectively compare new vs current interest payments.
Calculation of interest charges on the new card
Next, we calculate the interest charges you would pay on the new card. We calculate the interest charges you would pay on the new card based on the APR of the new card and the payoff method you selectedWe calculate the expected interest charged on your balance transfer for each month you have the card (and carry a balance).
Calculation of interest charges on your current card
Next, we calculate the interest charges you would pay if made the same purchases but on your current card. We do this so you can effectively compare interest savings between the new card (all possible options) and your current card. We follow the same methodology as described immediately above.
Calculation of expected interest saved
Finally, we calculate the expected interest saved by making these purchases on the new card. We do this by comparing the total interest charges you would pay on the new card to the total interest charges you would pay on your current card. This gives you a clear picture of the potential savings from switching to the new card.
Incorporating Interest Savings Into Card Recommendations
We factor interest savings into our card recommendations through the concept of total value.
The total value represents the overall value of a credit card condensed into a single number, encompassing rewards, benefits, fees, and more. By considering interest savings alongside other pertinent factors, such as rewards and benefits, we aim to identify cards that offer the best value proposition based on their individual preferences and spending habits.
See additional resources to learn more about how we calculate credit card total value and how we determine overall card scores and rankings.
