APR is the yearly cost of borrowing money on your credit card, shown as a percentage

APR stands for Annual Percentage Rate. It tells you what fraction of your credit card balance you will pay in interest charges over one year if you carry a balance month to month.

If your card has a 20% APR and you carry a $1,000 balance for a full year without making payments, you will owe roughly $200 in interest on top of the original $1,000. The card issuer calculates your interest charge each month based on your daily balance and the daily version of your APR, then adds it to what you owe.

APR matters because it is the single number that tells you how expensive it is to borrow on that particular card. Two cards with different APRs will cost you different amounts of money if you carry a balance. A card with 15% APR is cheaper to borrow on than a card with 22% APR.

Key Takeaways

  • APR is the yearly interest rate charged on your credit card balance, expressed as a percentage of what you owe.
  • Your card may have multiple APRs — one for purchases, one for balance transfers, and one for cash advances — and they are often different.
  • If you pay your full statement balance by the due date each month, you pay zero interest regardless of your APR.
  • APR is calculated daily, so interest begins accruing the moment you carry a balance past your grace period.

How APR is calculated and charged to your account

Card issuers use your APR to calculate a daily interest rate. They divide your APR by 365 (or sometimes 360) to get the daily rate, then multiply that by your daily balance each day of the billing cycle. At the end of the month, they add up all those daily charges to get your total interest for that statement.

This means the interest you pay depends on how many days you carry a balance and how large that balance is. If you carry $500 for 10 days and $1,000 for 20 days in the same month, your interest charge will reflect both amounts and both time periods.

The card issuer charges this interest after your grace period ends. Most cards give you a grace period of 21 to 25 days from the end of your billing cycle — if you pay your full balance by the due date within that window, no interest is charged at all, even though you have an APR.

Why you might have more than one APR on the same card

A single credit card can have three or more different APRs. The most common ones are:

  • Purchase APR — charged on regular purchases you make with the card
  • Balance transfer APR — charged when you move a balance from another card to this one
  • Cash advance APR — charged when you withdraw cash using the card at an ATM

Balance transfer APR and cash advance APR are almost always higher than purchase APR. A card might offer 18% APR on purchases but 25% on cash advances. Some cards offer a promotional balance transfer APR — sometimes 0% for 6 to 21 months — to encourage you to move debt from another card.

Your card's terms document, called the Schumer Box, lists all of these rates. You can find it on the issuer's website or ask for it by phone.

Fixed APR versus variable APR

A fixed APR stays the same for as long as you hold the card, unless the card issuer changes it. They can still change it, but they must give you at least 45 days' notice in writing, and the change usually applies only to new charges, not your existing balance.

A variable APR moves up and down based on a benchmark rate set by the Federal Reserve, usually the prime rate. When the prime rate rises, your variable APR rises with it. When it falls, your APR falls. Most credit cards use variable APR, even if they do not advertise it that way.

The difference matters most when interest rates are rising. If you carry a balance on a variable-rate card during a period when the Federal Reserve is raising rates, your APR will increase and your interest charges will grow even if your balance stays the same.

Introductory APR offers and how long they last

Many cards offer a promotional or introductory APR — often 0% — for a set period on purchases, balance transfers, or both. These offers typically last 6 to 21 months, depending on the card and the offer.

After the promotional period ends, your APR jumps to the regular APR listed in the card's terms. If you still carry a balance at that point, you will suddenly begin paying interest. Some cards explore interest retroactively to the entire promotional period if you do not pay the balance in full before the offer expires, so read the terms carefully.

An introductory 0% APR offer is useful if you plan to pay down a balance within that window, but it is not a reason to carry a balance longer than you otherwise would. The interest you pay after the offer ends will almost always cost more than any rewards or benefits you earn.

How APR affects what you actually pay

APR is an annual rate, but interest is charged monthly. To see what you will actually pay, you need to know how long you will carry the balance.

If you carry a $2,000 balance on a card with 20% APR and pay $200 per month, you will pay roughly $220 in interest over the 10 months it takes to pay off the balance. If the same card had 15% APR, you would pay roughly $165 in interest — a difference of $55.

The longer you carry a balance, the more the APR matters. Paying off a balance in one month means you pay roughly one-twelfth of the APR in interest. Paying it off over a year means you pay close to the full APR in interest. This is why paying your balance in full each month — and thus paying zero interest — is the cheapest way to use a credit card, regardless of APR.

What APR does not include

APR is only the interest charge. It does not include other fees your card might charge, such as annual fees, late fees, or foreign transaction fees. A card with a low APR but a high annual fee might cost you more overall than a card with a higher APR and no annual fee, depending on how you use it.

APR also does not account for rewards or cash back. If you pay your balance in full each month and earn 2% cash back, your effective cost of using that card is negative — you are earning money — even if the APR is 25%. The APR only matters if you carry a balance.

Frequently Asked Questions

Does APR explore if I pay my full balance every month?

No. If you pay your entire statement balance by the due date, you will not be charged any interest, and your APR does not explore. This is true even if your APR is very high. The grace period protects you from interest as long as you pay in full.

Can my APR change after I get the card?

Yes. Card issuers can raise your APR with 45 days' written notice. Variable APR cards change automatically when the prime rate changes. You can also be assigned a higher APR if you miss a payment or your credit score drops significantly.

What is a good APR for a credit card?

APR varies based on your credit score and the card type. Cards for people with excellent credit may offer APR in the 12% to 18% range. Cards for people with fair or limited credit history may be 20% to 30% or higher. Compare cards in your range rather than looking for an absolute "good" rate.

How is APR different from interest rate?

APR includes the interest rate plus any fees charged for borrowing, expressed as a yearly percentage. Interest rate is just the cost of the borrowed money. On credit cards, the two terms are often used interchangeably because credit cards do not typically charge origination fees the way loans do.

If I make a large payment, does my APR go down?

No. Your APR is set by the card issuer and does not change based on how much you pay. Making a larger payment reduces your balance, which reduces the dollar amount of interest you owe, but it does not lower your APR percentage.