Why is my interest rate higher than a friend’s, even at the same bank?

Interest rates are often tied to individual creditworthiness, meaning a specific credit history and score can result in a different rate than someone else applying for a similar product. This is one reason building credit responsibly over time can lead to more favorable rates on future credit.

Does my interest rate change over time?

It depends on whether the account has a fixed or floating rate. A fixed rate stays the same for the life of the loan, while a floating rate can change based on a benchmark rate in the broader market.

Can I negotiate my interest rate?

In some cases, particularly for an existing account with a positive payment history, contacting a lender to ask about a lower rate is worth trying. There’s no guarantee of success, but it costs nothing to ask, and some lenders are willing to adjust rates for account holders with a strong track record.

Does having no U.S. credit history mean I’ll be offered a higher interest rate?

Often, yes, at least at first. A lender evaluating an application with little or no credit history to review has less information to base a favorable rate on, so a higher starting rate is common for a first credit product. This isn’t permanent: building a track record of on-time payments, even on a small starter product, tends to widen access to better rates over time, and some lenders specifically design products for exactly this stage of building credit.

Is a lower interest rate always the better deal?

Usually, but not always without checking further. A lower interest rate paired with high fees can still result in a higher APR, and therefore a higher true cost, than a slightly higher interest rate with fewer fees attached. Comparing the APR side by side, rather than the interest rate alone, avoids being drawn in by an attractive headline number that doesn’t tell the whole story.

Back to Glossary

Interest rate: the base cost before fees are added

Key takeaways
- An interest rate is the cost paid to a lender for borrowing money, expressed as a percentage, or paid by a bank for holding savings.
- It doesn’t include additional fees, which is why it’s usually lower than a loan’s APR.
- On a credit card, the interest rate typically applies only if a balance is carried past the grace period.
- Credit history and score generally influence the interest rate a specific lender offers.
- Comparing interest rates alone, without checking APR, can give an incomplete picture of a loan’s true cost.

The interest rate is the percentage a lender charges for borrowing money, or a bank pays for holding it. Here’s what affects the rate offered and how to compare options fairly.

What is an interest rate?

An interest rate is the base cost of borrowing money, or the base return earned for saving it, expressed as a percentage. For credit cards specifically, this rate is typically stated as a yearly rate called the APR. For other loan types, the interest rate is distinct from, and generally lower than, the APR⁠(opens in new window), which also folds in additional fees. The distinction matters most at the point of comparison shopping, since two loans with identical interest rates can still carry very different total costs once fees are added into each one’s APR.

How interest rates affect what you pay or earn

Focusing only on the interest rate can lead to an incomplete comparison between loan options:

Fees aren’t included in the interest rate alone. Origination fees, closing costs, and other charges are captured in the APR, not the bare interest rate.
Creditworthiness affects the rate offered. Generally, a stronger credit history and score lead to more favorable interest rates, though lenders aren’t required to offer their best available rate to every applicant.
On most credit cards, interest can be avoided entirely. Paying a balance in full each month by the due date generally means avoiding interest charges on purchases altogether, since the rate typically only applies once a balance is carried past the grace period.

How a lender actually sets a specific rate

A specific interest rate isn’t pulled from thin air. Many lenders use risk-based pricing⁠(opens in new window), largely based on credit score, employment status, income, outstanding debts, and other factors, to decide what rate and terms to offer a specific applicant. Lenders often group applicants into pricing tiers based on these factors, so two people with very similar profiles but a credit score on opposite sides of a tier boundary can end up with noticeably different rates, even though the underlying risk they represent is nearly identical.

If a lender relies on a credit report to offer less favorable terms than it offers other borrowers, federal rules generally require sending a risk-based pricing notice explaining that decision, which is worth reading closely if received, since it can point to specific factors worth addressing before applying elsewhere. This notice exists specifically so a rejected or less-favorably-priced applicant isn’t left guessing about why.

What interest rates mean for newcomers and immigrants

For someone learning how credit cards actually work⁠(opens in new window), understanding that the interest rate only applies if a balance is carried past the grace period is a genuinely practical, cost-saving piece of knowledge to internalize early. Since interest rates offered to new credit users are often less favorable, reflecting limited credit history rather than any specific fault, focusing on paying in full each cycle sidesteps the interest rate question almost entirely while a stronger credit profile builds.

First steps for managing interest rates as you build credit

Aiming to pay a credit card balance in full each cycle avoids interest regardless of what rate applies to the account.
Comparing APR, not just the interest rate, when shopping for a loan shows the fuller cost picture.
Expecting a rate to improve over time as credit history strengthens is reasonable, provided on-time payments continue.

Common questions about interest rates

Why is my interest rate higher than a friend’s, even at the same bank?

Interest rates are often tied to individual creditworthiness, meaning a specific credit history and score can result in a different rate than someone else applying for a similar product. This is one reason building credit responsibly over time can lead to more favorable rates on future credit.
Does my interest rate change over time?

It depends on whether the account has a fixed⁠(opens in new window) or floating⁠(opens in new window) rate. A fixed rate stays the same for the life of the loan, while a floating rate can change based on a benchmark rate in the broader market.
Can I negotiate my interest rate?

In some cases, particularly for an existing account with a positive payment history, contacting a lender to ask about a lower rate is worth trying. There’s no guarantee of success, but it costs nothing to ask, and some lenders are willing to adjust rates for account holders with a strong track record.
Does having no U.S. credit history mean I’ll be offered a higher interest rate?

Often, yes, at least at first. A lender evaluating an application with little or no credit history to review has less information to base a favorable rate on, so a higher starting rate is common for a first credit product. This isn’t permanent: building a track record of on-time payments, even on a small starter product, tends to widen access to better rates over time, and some lenders specifically design products for exactly this stage of building credit.
Is a lower interest rate always the better deal?

Usually, but not always without checking further. A lower interest rate paired with high fees can still result in a higher APR, and therefore a higher true cost, than a slightly higher interest rate with fewer fees attached. Comparing the APR side by side, rather than the interest rate alone, avoids being drawn in by an attractive headline number that doesn’t tell the whole story.

In Summary

An interest rate is the base cost of borrowing, but it’s only part of the full picture, since fees and credit history both shape what’s actually paid. Understanding the relationship between interest rate, APR, and credit history helps in making more informed borrowing decisions while establishing a financial footing in a new country. Understand your options and compare both the interest rate and APR before committing to any loan or credit card, rather than letting either number alone make the decision.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.