What is apr on a credit card:
Tips for Managing Your Debt

Advertiser Disclosure
Updated: May 11, 2023
author photo Written by Louis BakerUpdated: May 11, 2023
Advertiser Disclosure

As a credit card user, you've probably come across APR a couple of times. But do you really know what means? If you don't, then you've come to the right place. This article will guide you on the basic things you need to know about APR.

You'll understand what APR is, the different types that exist, some steps you can take to reduce it, as well as some other important things to know.

Your knowledge of APR is important because it helps you make better financial decisions when you apply for a credit card. Ensure you read till the end to learn all you need to about APR on a credit card.

What does APR on a credit card mean?

APR ( Annual Percentage Rate) is the annual interest, expressed as a percentage, that you pay to your credit provider when you loan some money using your credit card. And it consists of the interest and other standard fees.

This value varies across different credit lenders and usually depends on the customer's creditworthiness.

To better understand APR, let's consider a simple example. Suppose you have a credit card with a $1,000 balance and an APR of 18%. This means that, over the course of a year, you would pay approximately $180 in interest if you didn't pay off the balance or make any additional purchases.

However, credit card interest is typically calculated on a daily basis, so the actual amount of interest you'd pay could vary depending on how you make payments and use the card.

In our example, the daily interest rate would be 0.0493% (18% APR divided by 365 days). If you carried the $1,000 balance for a full month, you'd pay around $14.79 in interest for that month (assuming a 30-day month).

Keep in mind that APRs can vary depending on the type of transaction, such as purchases, balance transfers, or cash advances. Different APRs may apply to different portions of your balance, and the APR may change over time due to changes in the prime rate or other factors.

What percentage is a good APR on my credit card?

A good APR for a credit card largely depends on your credit score, the prime rate, and the type of card you're applying for. Generally, the better your credit score, the lower the APR you can qualify for. Credit card APRs can range from as low as around 10% to as high as 25% or more.

Here are some examples to help illustrate what a good APR might look like:

  • Excellent credit score (740 or higher): With excellent credit, you can find a standard credit card with APRs as low as 10% - 13%. Although these cards may not come with too many rewards, the low interest could suffice.
  • Good credit score (670 to 739): You can qualify for an APR between 14% to 20% with a good credit score. However, if you opt for credit cards with rewards, expect a slightly higher interest rate.
  • Fair credit score (580 to 669): A fair credit score holder would typically be given APRs as high as 25%.
  • Bad credit score (below 580): It's difficult to qualify for a favorable APR value with a bad credit score. Most credit card issuers that serve bad credit holders offer APRs of about 29% and above.

It is important to note that these rates are average estimates, and they can vary. Several factors contribute to the final APR value. Most credit issuers look at metrics like your income, creditworthiness, and debt obligations to determine your interest rate.

Also, if you open a credit card with a variable APR, the rate you get can fluctuate based on the prime rate. The prime rate is the interest rate that financial institutions charge their best customers, and it is determined by the federal rate.

Tip: When looking for a good APR, it's essential to consider not only the interest rate but also the card's features, benefits, and fees.

A card with a slightly higher APR but better rewards and lower fees might be a better overall value than a card with a lower APR but limited benefits and high fees. Always compare multiple credit card offers before making a decision to ensure you're getting the best possible deal.

How does APR on a credit card work?

A credit card APR is applied to your outstanding balance when you carry that balance beyond the card's grace period. The grace period is a set number of days, typically between 21 and 30 days, during which you can pay off your balance without incurring any interest charges.

If you pay your balance in full within the grace period, you won't have to worry about your APR. However, if you only make a partial payment or no payment at all, the APR will apply to the remaining balance.

Because some months are longer than others, most credit card issuers use a Daily Periodic Rate (DPR) to calculate your monthly interest, which is the APR divided by the number of days in a year, usually 365.

Then, by multiplying the calculated DPR by the days of your billing cycle and your average daily balance, your interest charges for a specific month can be obtained.

At the end of each billing cycle, the interest charges plus your outstanding balance for this month will equal your next-month balance. If you continue to hold a balance, the new interest will accumulate over time.

In this case, you will be charged interest on top of interest, meaning that your new monthly interest will be calculated based on a higher bill that already includes the previous interest from last month, which leads to higher repayment costs and a higher risk of default on your debt.

The best course of action is to pay your balance in full every month, or if that isn't possible, at least pay more than the minimum payment required to avoid rolling interest as much as possible.

The challenge with these interest rates is that they compound over time. If you owe a balance after its due date, your new spending is added to the pending balance and its interest. If this compounding continues, paying it off could pose a challenge.

However, when you pay off your loan on its due date or within the grace period, there will be no interest accrued to pay. As such, it is best to settle your balance as scheduled every month. You can also plan to pay your bill early to reduce your balance throughout the month.

How to calculate credit card APR

Calculating the credit card APR is essential to understand the cost of borrowing when you carry a balance. Here's a step-by-step guide on how to calculate your credit card APR using an example:

1. Convert Your Annual Interest Rate To a Daily Rate

The portion of a loan that is charged or generated as interest over the course of a year is known as the annual interest rate.

This annual interest rate must first be changed into a daily rate, commonly referred to as the daily periodic rate (DPR). To get this, divide the APR by the number of days in a year to achieve this (usually 365).

Example: Let's say your credit card has an APR of 16%. To find the DPR, divide 16% by 365 days:

DPR = (16% / 365) = 0.0438%

2. Calculate Your Average Daily Balance

Next, figure out your daily average balance for the billing period. Let's say your billing period spans over a month. You must first sum up your daily balances for each day of the billing cycle ( an average of 30 days), then divide that amount by the number of days in the cycle to arrive at this calculation.

Example: Let's assume you have a 30-day billing cycle, and you start with a $1,200 balance. On day 15, you make a $300 purchase, increasing your balance to $1,500. The daily balances would be:

  • Days 1-14: $1,200 balance
  • Days 15-30: $1,500 balance (after the $300 purchase)

Now, calculate the sum of the daily balances for each segment:

  • Days 1-14: $1,200 x 14 days = $16,800
  • Days 15-30: $1,500 x 16 days = $24,000

Determine the average daily balance by adding these sums together and dividing by the total number of days in the billing cycle:

Average daily balance: ($16,800 + $24,000) / 30 days = $1,360

3. Calculate Your Monthly Finance Charge

Finally, to calculate your monthly finance charge, multiply your average daily balance by the DPR and the number of days in the billing cycle.

Example: Using the DPR of 0.0438% and the average daily balance of $1,360:

Monthly finance charge: $1,360 x 0.0438% x 30 days = $17.87

In this example, you would be charged $17.87 in interest for the billing cycle. Keep in mind that this is a simplified example and that your actual interest charges may vary depending on factors such as grace periods, additional fees, and changes in your balance throughout the billing cycle.

Different Types of APRs

The five most typical APRs you might encounter are listed below:

Purchase APR

The purchase APR is the most prevalent type of APR. It is the interest rate applied to the purchases you make with your credit card. If you don't pay off your entire balance by the due date, you'll be charged interest on the remaining amount based on the purchase APR. The interest is normally calculated daily and added to your balance monthly.

It's crucial to realize that it can vary greatly according to the credit card company, the cardholder's creditworthiness, and other elements. The following are some essential considerations regarding purchase APRs:

  • They are frequently erratic: In contrast to a fixed interest rate, which doesn't alter over time, a variable APR can change in response to market changes like the Federal Reserve boosting interest rates. The APR you pay may change over time because many credit card providers offer variable purchase APRs.
  • It might be connected to your credit rating: When determining your purchase APR, credit card providers take into account a number of significant factors, including your credit score. A lower APR may be available to you if you have high credit as opposed to someone with a lower score.
  • It might include marketing incentives: As a draw for applicants, several credit card providers offer promotional purchase APRs.
  • For the first 12 months after opening your account, for instance, you can be given a 0% purchase APR. It's vital to understand the terms and conditions of any special offers on your credit card, particularly the interest rate (APR) that will apply when the offer period is finished.

Example: Your credit card has a purchase APR of 15%. You make a $500 purchase and only pay off $200 within the grace period, leaving a remaining balance of $300. The interest on this remaining balance will be calculated using the 15% APR.

Balance Transfer APR

Balance transfer APR is the interest rate applied to debt transferred from one credit card to another, often to take advantage of a lower interest rate or promotional offer.

Example: Your credit card has a balance transfer APR of 12%. You transfer a $2,000 balance from another card with an 18% APR to this card. The interest on the transferred balance will now be calculated using the 12% APR, saving you money compared to the original card's higher rate.

Introductory APR

Introductory APR is a temporary, lower interest rate offered by credit card issuers to attract new customers. This rate usually lasts for a specified period (e.g., six months or one year) and may apply to purchases, balance transfers, or both.

Example: A credit card offers a 0% introductory APR on purchases for the first 12 months. If you make a $1,000 purchase and pay off $800 within the first 12 months, you won't be charged interest on the remaining $200 balance during the introductory period. After the introductory period ends, the standard purchase APR will apply to any remaining balance.

Cash Advance APR

Cash advance APR is the additional cost incurred when using your credit card to withdraw cash from an ATM. You will have to pay back more money because this rate is typically greater than the interest rate for routine purchases or balance transfers.

In contrast to conventional purchases, interest costs for cash advances typically begin right away, with no grace period. This implies that even if you pay the money back immediately, interest fees will begin piling up as soon as you withdraw the cash.

Example: Your credit card has a cash advance APR of 25%. You withdraw $300 in cash from an ATM using your card. The interest on this cash advance will be calculated using the 25% APR starting from the day you made the withdrawal, with no grace period to avoid interest charges.

Penalty APR

Penalty APR is the extra interest rate that credit card companies charge you if you break the rules of your credit card agreement. This can include if you miss a payment or spend more than your credit limit.

This penalty APR is usually much higher than the regular interest rate you pay, which means you'll have to pay more money back for each dollar you owe. This penalty rate may stay on your account for a set time period or even indefinitely until you meet the terms of your agreement again.

Example: Your credit card has a penalty APR of 29%. You miss a payment, and the issuer applies the penalty APR to your account. The interest on your outstanding balance, which was previously calculated using the standard APR (e.g., 15%), will now be calculated using the 29% penalty APR until you meet the issuer's requirements to revert to the standard APR.

Variable APR vs. fixed APR

When it comes to credit card APRs, there are two main types: variable APR and fixed APR. Understanding the differences between them can help you make informed decisions when choosing a credit card or managing your credit card debt.

Variable APR

A variable APR is the interest rate on your credit card that might go up or decrease depending on an index. This index is usually the prime rate, which is a standard interest rate used by banks and other financial institutions.

The prime rate can change based on the Federal Reserve's decision to adjust the federal funds rate, which is the rate at which banks lend money to each other.Consequently, if the prime rate goes higher, your variable APR will also go up, and you'll wind up paying more in interest on your credit card amount.

With a variable APR, your credit card's interest rate will typically be expressed as the prime rate plus a fixed margin determined by the credit card issuer. For example, if the prime rate is 3.25% and the issuer's margin is 12%, your variable APR would be 15.25%. If the prime rate increases or decreases, your APR will adjust accordingly.

Variable APRs are more common than fixed APRs for credit cards, as they allow issuers to adjust rates in response to changing economic conditions.

Fixed APR

A fixed APR is an interest rate on your credit card that doesn't alter. This indicates that the interest rate will stay the same for a specified amount of time or as long as you have the credit card. It won't move up or down, even if the economy changes or the prime rate changes.

Fixed APRs are not as prevalent for credit cards as variable APRs. Credit card firms normally favor variable APRs because they can modify the interest rate to reflect changes in the economy or the prime rate.

This provides them more flexibility to change their pricing and perhaps make more money. Yet, some consumers prefer fixed APRs since they provide more consistency and certainty in their interest payments.

In some cases, a “fixed” APR can be altered, but these are not common. A card provider is not allowed to raise your interest rate on past transactions unless one of the following situations occurs: A temporary rate that applies to a balance transfer, for example, expires.

This rate must be temporary for at least six months before they can change. Rates can also change if you default on your payments or if the card issuer provides advance rate changes in writing.

Credit Card APR vs. Credit Card Interest

Although the terms "credit card APR" and "credit card interest" are often used interchangeably, they have slightly different meanings. Understanding the difference between them can help you better manage your credit card debt and minimize your borrowing costs.

Credit card APR

APR stands for the interest rate that credit card issuers charge you when you use one of their cards to borrow money. It is calculated and takes into account both the interest rate and any additional fees or penalties that might be applied to the card.

Hence, the APR is the proportion of interest that you will be charged on any unpaid debt that you carry over to the next month when you use your credit card to make a transaction. Understanding your credit card's APR may help you better manage your money and prevent paying any extra fees.

Credit card issuers typically have different APRs for various types of transactions, such as purchases, balance transfers, cash advances, and penalties. The APR may also be variable or fixed, as discussed in Part 6.

Credit card interest

Credit card interest is the actual amount of money you're charged for carrying a balance on your credit card. It's calculated based on the APR and the outstanding balance you carry during the billing cycle.

To calculate credit card interest, issuers typically use the daily periodic rate (DPR), which is derived by dividing the APR by the number of days in a year. The DPR is then multiplied by the average daily balance and the number of days in the billing cycle to determine the total interest charged for that period.

When you use your credit card, you are borrowing money. The APR is the interest rate you are charged for borrowing that money for a year. It covers items like interest and fees and provides you an estimate of how much you'll pay in total for using your credit card.

Credit card interest, on the other hand, is the amount you are charged for borrowing money on your credit card during a billing cycle. Thus if you carry a balance on your card from one month to the next, you will be charged interest on that sum.

In summary, APR is the entire cost of borrowing on your credit card for a year, whereas credit card interest is the amount paid for borrowing money during a billing cycle.

What makes your APR change?

Several factors can influence the APR you receive on your credit card. Understanding these factors can help you improve your chances of securing a lower APR and reducing your borrowing costs.

Prime rate

Banks and other financial institutions frequently use the prime rate as an essential interest rate. The amount of interest you pay on your credit card or loan can change depending on whether the prime rate rises or falls.

This is due to the fact that a lot of loans and credit cards have variable interest rates that are linked to the prime rate. Hence, if the prime rate increases, your interest rate may as well, increase the amount of interest you pay.

On the other hand, if the prime rate declines, your interest rate may as well, resulting in a reduction in the amount of interest you pay.

Your Credit score value

Your credit score plays a significant role in determining the APR you're offered on a credit card. A higher credit score signals to credit card issuers that you're less likely to default on your payments, and they're more likely to offer you a lower APR. Conversely, a lower credit score indicates a higher risk, leading to a higher APR.

Your Income

The APR you are charged on a credit card may vary depending on your income. You can be given a reduced APR if your income is higher. This is so that you may avoid missing payments or defaulting on your credit card debt, as a bigger salary shows that you are solid financially.

You are viewed as a less hazardous borrower by the credit card business, and as a result, you can receive a better interest rate. Nonetheless, additional elements that affect your APR include your credit history, credit score, and debt-to-income ratio.

Fees and other charges

Some credit card issuers may include additional fees and charges in their APR calculation, which can lead to a higher overall APR. These fees could include annual fees, balance transfer fees, cash advance fees, or foreign transaction fees, among others.

Loan Type

Various sorts of transactions on your credit card may have different interest rates. These rates can be different even on the same credit card. Some typical categories are:

  • Purchase APR: The interest rate for purchases made using the card.
  • Balance Transfer APR: The rate for transferring a balance from one card to another.
  • Cash Advance APR: The rate for withdrawing cash from your credit card.
  • Penalty APR: A higher rate that may apply if you skip a payment or break other agreements.

By understanding the factors that influence your credit card APR, you can take the necessary steps to improve your credit score, maintain a stable income, and choose credit cards with lower fees to secure a lower APR and reduce your borrowing costs.

Where can you find your credit card's APR?

Try to Log into your account

Logging into your online account or mobile app is one of the simplest ways to find out what the APR is for your credit card. With your online account dashboard, the majority of credit card companies give you a summary of your account details, including your APR. You might be able to find it in your account statements or transaction history if you can't find it there.

You can find it in your credit card agreement

Your credit card agreement is a written contract that gives you the rules and restrictions of using your credit card, like how much you will be charged in interest rates (APR)

After you obtain your credit card, the agreement should be delivered to you as part of your welcome package or sent to you separately. If you can't find your agreement, you can ask your credit card provider for another copy.

On your credit card's application page

You may normally obtain this information when you are filling out the application form for the card. It may be in the terms and conditions or a summary table called the "Schumer Box".

How to lower the APR on your credit card

Lowering your credit card APR can help reduce your borrowing costs and make it easier to pay off your credit card debt. Here are some strategies to consider:

Pay off your credit card balance

By paying off your credit card balance in full each month, you can avoid interest charges altogether, effectively reducing your APR to 0%. This is the best way to minimize your borrowing costs and stay out of credit card debt.

Try To Pay your bill early

Your average daily amount, which is used to determine your interest charges, can be reduced by paying off your credit card bill ahead of time. Even if your APR stays the same as a result of this, your overall interest payments may be lower.

For example, let's say you have a credit card with a 20% APR and a 30-day billing cycle. You make a $1,000 purchase on the first day of the billing cycle. If you wait until the payment due date to pay off the balance, the average daily balance for the billing cycle would be $1,000.

However, if you decide to pay off the balance in full just 15 days into the billing cycle, your average daily balance would be reduced:

  • For the first 15 days, the average daily balance would be $1,000.
  • For the next 15 days, the average daily balance would be $0, as the balance has been paid off.

To calculate the average daily balance for the entire billing cycle:

(15 days * $1,000 + 15 days * $0) / 30 days = $500

By paying your bill early, you've effectively reduced your average daily balance to $500, which would result in lower interest charges for that billing cycle. Even though your APR remains the same, paying your bill early helps you save on interest costs.

Consider a balance transfer

Transferring your credit card balance from one card to another is known as a balance transfer. Individuals typically use this to obtain a reduced interest rate or exclusive deal.

This can help them save money and settle their debt more quickly. A unique deal on some credit cards lets you pay no interest for a set amount of time, generally a few months. These are introductory 0% APR on balance transfers. They help you save money on interest fees while you pay off your debt.

Try to Improve your credit score

As mentioned earlier, your credit score plays a significant role in determining your APR. By improving your credit score, you may qualify for a lower APR on your current credit card or be able to secure a new credit card with a lower APR.

Call your credit card issuer if you need to ask

Sometimes, all it takes is a phone call to your credit card issuer to request a lower APR. If you have a good payment history and a solid credit score, your issuer may be willing to lower your APR to retain you as a customer. Be prepared to negotiate and make a case for why you deserve a lower rate.

Try to Shop around for a new credit card

If you're unable to lower your current credit card's APR, consider shopping around for a new credit card with a lower APR. Be sure to compare cards, read the terms and conditions, and factor in any fees before making a decision.

You Can Consolidate your debt

The process of consolidating several loans or payments into one debt is known as debt consolidation. Typically, this is done to make the repayment process easier and perhaps lower the overall cost of borrowing.

A person could consolidate debts into a single loan with a lower interest rate and a single monthly payment. For instance, if they have several credit card bills with various interest rates and payment deadlines. This can facilitate debt management and possibly result in long-term savings on interest payments.

A personal loan, a credit card with a balance transfer option, or engaging with a debt consolidation firm is just a few of the ways you can consolidate your debt. It's crucial to carefully weigh the advantages and disadvantages of each choice before selecting which is best for you.



APR (Annual Percentage Rate) and APY (Annual Percentage Yield) have different meanings and calculations.

The annual percentage rate, or APR, is the term used to describe the annual interest rate applied to loans, credit cards, and other forms of credit. The interest rate and any other fees or costs related to the credit are included in the APR. It is easier to compare various credit products when using this rate as a standard measure of the cost of borrowing.

Annual percentage yield, also known as APY, is a rate that accounts for the impact of compound interest on investments such as savings accounts and certificates of deposit (CDs).

As an investment's interest is compounded, or paid back to the principal, the rate of return on the investment increases over time. The interest generated on previously accumulated interest is taken into account when calculating annual percentage yield, which yields a greater rate than the nominal interest rate.

APY is used to evaluate investment returns, APR is used to compare borrowing costs. Hence, if you want to save money, select the account with the highest annual percentage yield (APY), and if you want to borrow money, find the credit product with the lowest annual percentage rate (APR).

How Installment Loan APRs Work

Installment loans, such as personal loans, auto loans, or mortgages, also have APRs associated with them. However, the way APR is applied to installment loans is different from how it's applied to credit cards.

An installment loan is a kind of loan that you repay over a predetermined period of time in fixed sums, known as monthly installments. The interest rate and any additional fees or charges related to the loan are both included in the APR, which is a numerical value. This clarifies the overall cost of borrowing the funds.

When you first begin making payments on an installment loan, the majority of those payments will be used to cover the interest, and only a tiny fraction will be used to pay off the principal. But, if you continue to make payments over time, the balance of principal and interest you pay off rises, enabling you to pay off the loan in full finally.

While both credit card APRs and installment loan APRs represent the cost of borrowing, the way they are applied and calculated differs. Installment loan APRs are used to determine fixed monthly payments over a set period, while credit card APRs are applied to outstanding balances carried over from one billing cycle to the next.


Understanding the APR on a credit card is crucial for managing debt and borrowing costs. APR includes interest rates and additional fees, and it varies depending on factors such as credit score, income, and loan type.

By employing strategies like paying off balances, improving credit scores, and negotiating with issuers, consumers can potentially lower their APRs, reducing the cost of carrying credit card debt and achieving better financial health.

author photo

Written by

Louis Baker


Louis Baker started his career in 2017 by contracting with Experian. He also became a part-time content creator in various fields such as insurance, personal finance & investment, etc.

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
On this page Jump to