What is a Fixed APR?

Luke Arthur
Luke Arthur
Many credit cards have a fixed APR.
Many credit cards have a fixed APR.

The term fixed APR stands for fixed annual percentage rate. This term essentially means the amount of interest that is going to be charged over the course of a year. A fixed APR is used with many different types of loans as well as with credit cards. When borrowing money, it is important to know whether the APR is fixed or not.

There are two main types of annual percentage rates. A borrower could be charged a fixed APR or a variable APR. A fixed APR provides the borrower with a set amount of interest over the course of a year. For example, if the fixed APR is 5%, the borrower knows that he or she will pay exactly 5% over the next year.

With a variable APR, the interest rate can fluctuate. This means the interest rate is going to be tied to a financial index and it can move up and down depending on conditions in the financial markets. Many times, a variable APR will be tied to the prime rate and have a certain amount of interest added onto it. When working with a variable APR, it can be difficult to determine how much interest will be charged over the course of a year.

A fixed APR can be very desirable when borrowing money. As a borrower, it is going to be much easier to budget loan payments or credit card payments. The borrower knows exactly how much interest is going to be charged and will be presented with a fixed monthly payment. This provides some consistency in the budget of the individual and he or she will not be surprised by any payments.

Another advantage of having a fixed APR is that a borrower will not have to be subjected to market changes. With a variable APR, the borrower is in a position of risk. If market interest rates increase, the payment of the individual could increase substantially. With a fixed interest rate, this is not going to be an issue. The borrower is locked into a particular interest rate over the long term.

When working with credit cards, fixed interest rates will often be offered upfront. If an individual misses a credit card payment, the rate could become a variable rate or could change to a higher fixed rate. This makes it very important to always make credit card payments on time so interest rate changes can be avoided.

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Discussion Comments


@Mykol - Normally I would think that a fixed APR is a safe bet, but I agree that you should read the fine print. Not only can fixed APR credit cards spring new changes in their rates, but some of them have begun to assess finance charges the moment you make a charge!

So you will get a fee even if you pay the balance in full each month. They’re doing this because they’ve lost a lot of money and are scurrying for ways to make it up. Read the little print and pay attention to your statements at the end of the month.


@Charred - You don’t have to abandon that convenience. If mortgage rates go down you can also refinance your fixed APR instead of having to use a variable rate. That’s what many people do when rates begin to really plummet.

They say you shouldn’t do this unless the new 30 year fixed APR is at least two percentage points lower than your current interest rate. So for example if your current interest rate is 6%, you shouldn’t consider refinancing unless the new fixed APR would be around 4% or less.

I don’t know the rationale behind this but I think it has to do with closing costs and stuff like that. Of course I think it follows that you shouldn’t refinance unless you are going to stay in your house for quite some time, otherwise the closing costs would eat into whatever money you might have saved in payments.


I prefer fixed APR loans for mortgages, especially when rates are at historic lows, but there’s no denying that a variable APR will get you a better rate at least at first.

Some people I know have gotten incredible variable rates on their mortgages. Of course the risk is that the rate will go up, making the mortgage payments unaffordable.

Some people go with the variable rate, benefit from the reduced interest payments, and then sell the house before the rates go up too much. I think that this would work if you have a five year horizon or less for example. I prefer the convenience of a fixed APR however.


Just make sure you always read the fine print on the credit card offers you get. They all sound good up front, but there are often changes later on down the road.

I responded to one credit card offer that advertised a fixed APR for balance transfers. I thought I would get this rate all the time, but after awhile, it changed to a variable rate.

The information was all there, I just didn't pay close enough attention to the fine print, so won't let that happen again.


Usually when I get a credit card application in the mail, they are advertising a low fixed APR credit card rate at first.

They are all different, but many of them will change to a variable rate at some point in the future.

I have also noticed that many of the credit cards that offer extra incentives like airline miles and other perks, often have a higher APR rate than a card that doesn't have these benefits.

This doesn't concern me so much with credit cards, because I always try to pay off my balance every month. When it comes to my mortgage loan rate though, I always want to make sure and have a fixed rate.

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    • Many credit cards have a fixed APR.
      By: Andrey Bandurenko
      Many credit cards have a fixed APR.