How Do APRs of Business Credit Cards and Personal Credit Cards Differ?

The APR (Annual Percentage Rate) on a bank-issued credit card — regardless of whether it’s a business or personal card — will generally coincide with the card’s reward potential. Therefore, business cards touting generous welcome bonuses and cash back rewards typically come packaged with higher APRs.

Additionally, business credit card interest rates and fees can change without notice since issuers are not mandated to follow consumer protection laws. Conversely, personal credit card companies are required to notify you at least 45 days in advance before raising your fees or interest rates.

What Is APR?

APR is your total yearly cost for borrowing funds, expressed as a percentage. For example, a 15% APR on a $1,000 balance will cost your business $150 per year.

Mortgages and business loans that have a predictable balance and monthly payment will charge an effective APR. This number includes interest, fees, and upfront charges for services that occur during closing.

However, for credit cards, the advertised rate is a nominal APR, which is equal to your interest rate. You may be required to pay other fees on top of this figure, but they are not included in the APR. That’s because, with unpredictable payments and fees, there’s no way to anticipate how these charges will factor into your overall cost. 

Current Federal Reserve data reports an average APR for personal (or “consumer”) credit cards of 14.75%, while business card APR averages around 16 to 23%.

How Is APR Determined?

In addition to higher costs associated with reward-based business cards, other variables will factor into your card’s APR:

Prime Rate and Margin

Both business and personal credit card issuers use the U.S. Prime Rate as the basis for their APRs. The prime rate is a standard index commercial banks use to determine the interest amount charged to their most creditworthy corporate borrowers. 

Credit card companies then add a margin to determine the APR that they will charge the cardholder. The prime rate is consistent from card to card, but the margin charged on business cards is often higher than on consumer cards. 

Credit Scores

Consumer card issuers will do a hard credit check on your personal credit score to see how likely you’ll be able to cover your debts. High scores with the major credit bureaus typically translate to a lower APR. 

Business card companies will check your business credit score. Because of the personal guarantee required in most small business financing, they will also consider your consumer credit report. This reassures them that you’re capable of repaying their debt even if your company can’t.

Secured vs. Unsecured

Most credit cards are unsecured, meaning you don’t have to put up any collateral. On the other hand, a secured card requires a cash deposit to back the debt and usually offers a lower APR — this will be true for both business and personal credit cards.

Types of Credit Card APR

Each credit card account is equipped with multiple APRs, so your rate will vary based on your card usage. Business and personal cards can have different policies in how they assess these interest rates:

• Balance transfers — Fees and interest rates for transferring balances from another account are frequently higher for business cards. 

• Purchases — The APR charged on a new purchase is generally the same as the advertised nominal rate. Business and personal card companies only charge this rate if you carry a balance over multiple months and, if you pay off your credit card balance in full each month, the APR will not apply.

• Introductory rates — Many personal accounts offer a low or 0% introductory rate for purchases and transfers that stays in effect for a year or more. This is less common with business cards, and if there is an introductory rate, it is often for a shorter period of time and limited to new purchases.

• Cash advances — The APR on cash advances is almost always higher than the rate charged for purchases and balance transfers. Plus, the issuer can set a cash advance fee on top of the higher interest on each transaction — and with business cards, issuers can raise these fees without notice.

• Penalty — Too many late payments may trigger a higher penalty APR. With consumer card protections, you are eligible to go back to your original APR after six months of on-time payments. Business cards, however, are allowed to leave the higher penalty APR in effect as long as they choose.