What Is APR on a Credit Card? Types of Credit Card APRs Explained

The annual percentage rate (APR) on a credit card is the annual interest you’ll pay if you carry a balance. This is a cost that’s charged to credit card customers by card issuers for the privilege of borrowing money.

APR has a slightly different meaning for credit cards than it does for other financial products, including personal loans. While an APR for other types of loans includes interest rate and fees, for credit cards APR is synonymous with the interest rate.

The majority of credit cards have variable APRs, which change over time based on the Prime Rate determined by the Federal Reserve. Most credit cards also have multiple APRs depending on the transaction type, which makes the entire process of calculating interest rates even more confusing.

How does a credit card APR work?

Your regular credit card purchase APR is set by the issuer once you’re approved for a new credit card. It’s the interest rate you will be charged for borrowing funds, which is broken down into a daily rate.

You can avoid interest charges entirely if you repay what you owe by the statement due date or within the card’s grace period. However, if you only pay a portion of the balance, or use the card for a cash advance (where there is no grace period), interest will be assessed and added to what you owe.

How to calculate credit card APR

Here’s how to calculate your regular purchase APR, using an example of a credit card with a 18% variable APR, 30-day billing cycle and a $1,000 balance on the card each day. This can help you determine what you’d be charged in interest if you don’t pay your bill in full.

1. Convert your annual interest rate to a daily rate Credit card interest is calculated on a daily basis, so you’ll need to convert the APR to a daily rate by dividing your APR by 365.

For example: 18% ÷ 365 x 100 = 0.049% daily interest rate.

2. Figure your average daily balance This can be done by taking the total balance from each day of the billing cycle and dividing that by the total number of days in the billing cycle. Then, multiply that amount by the total number of days in the billing cycle.

For example, if you have a $1,000 balance each day of a 30-day billing cycle, your average daily balance will be $1,000.

3. Calculate your monthly finance charge Multiply your average daily balance by the annual percentage rate and the number of days in your billing cycle, then divide that amount by 365 days.

For example: (($1,000 daily x 18% APR) x 30-day billing cycle) ÷ 365 days = $14.79 in interest charges for one billing cycle, which will be added to your balance and minimum payment if you don’t pay if off during the grace period.

The interest will then be recalculated and assessed every month on your average daily balance until it hits $0.

The different types of APRs

There are five different types of APRs you may incur when using a credit card.

Depending on the actions you take with your credit card, these interest rates may inflate your balance a little or a lot, depending on how quickly you pay off your balance. When you understand how the following APRs can come into effect, you can potentially avoid all interest charges.

Purchase APR The most common APR associated with a credit card is the purchase APR. This is the interest rate you’ll be charged for new purchases made with your card that are not repaid in full before the end of the card’s grace period — the amount of time between the end of a billing cycle and when your bill is due.

Balance transfer APR A balance transfer APR applies to any balances that are transferred from one card to another. Unlike the purchase APR, the balance transfer APR is charged from the date you make a transfer and there’s no grace period, unless associated with an introductory APR (explained below).

It’s common for banks to charge the same APR for both balance transfers and purchases — though you should always check, as it may differ on some cards.

Introductory APRMany credit cards offer intro periods where you can benefit from a low or 0% APR for a given time period. With these cards, you can carry a balance without incurring interest charges for a certain time frame, as long as you make the required minimum payment each month.

For example, you may get a card offering an intro 0% for 12 months on new purchases or an intro 0% for 15 months on balance transfers. If you take advantage of these offers, you won’t be charged interest during the 12- or 15-month terms. Any balance left on the card after the intro period expires will begin to incur interest at the standard purchase and balance transfer APR.

Note that if you don’t pay off your balance in full before the intro period ends, some cards (typically store cards) will charge you all the interest accrued since the purchase or balance transfer date — otherwise known as deferred interest.

Cash advance APR A cash advance is when you withdraw cash from your credit card’s line of credit. The cash advance APR is often significantly higher than your purchase or balance transfer APR. There is also typically a cash advance fee and no grace period. We don’t recommend taking out a cash advance for these reasons, unless it’s an emergency and you can repay the advance quickly.

Penalty APR: When you miss a payment or make a payment far past your due date (generally 60 past-due), some cards will impose a penalty APR as high as 29.99%. In addition to an increased APR, you risk termination of any intro 0% APR offers and damage to your credit score. Plus, the penalty APR has the potential to apply to your account indefinitely if you are repeatedly late with payments.

However, the CARD Act of 2009 requires credit card companies to restore your regular purchase APR if you make consecutive on-time payments during the six months after the date the penalty APR is imposed — all the more reason why you should always pay at least the minimum due on time. Autopay is a helpful feature that can help keep you on top of timely payments.

Tip: If a card charges a penalty APR, it must be listed in the rates and fees table on a card’s application page. You can avoid penalty APRs completely by checking rates and fees before you apply, and avoiding cards that charge them.

Variable APR vs. fixed APR

Credit card APRs nowadays tend to be variable, meaning they rise and fall with the Prime Rate. When the Prime Rate increases (or decreases), so will your card’s variable APR.

However, there are some cards out there that offer a fixed APR, which do not fluctuate with the Prime Rate. If you have a card with a fixed interest rate (which is less common and often found from smaller banks and credit unions), your interest rate shouldn’t change — unless, of course, you misuse the card and incur a penalty APR.

Where to find your credit card’s APR

You can find your credit card’s APR on your monthly credit card statement, within the terms and conditions of your credit card information packet, or online with a simple search.

• Logging into your account: The easiest way to find your APR is by logging into your bank’s mobile app or website. It’s listed either with your account or on your most recent statement — though if you still can’t find it, you can always call the number on the back of your card.
• In your credit card agreement: You can also consult the terms and conditions of your credit card agreement, which was mailed with your card. The APR will usually be found on the first page, in a table titled “Interest Rates and Interest Charges.” You’ll see the APR next to a description of what kind of transaction is subject to that particular APR.
• On the card’s application page: If you’re online and thinking of applying for a credit card, you may have to look pretty hard to find a section, tab or website link labeled “Terms and Conditions,” “Rates and Disclosures” or “Pricing and Information.” Once you find the link, navigate until you find the interest rates and interest charges table.

It’ll look something like this:

Tip: You may assume that the better your credit score, the lower the APR you’ll qualify for, but that isn’t always the case. You won’t really know what your new card’s APR will be until you are approved. If your credit score isn’t the greatest, know that you’ll most likely be offered an APR closer to the higher end of range.

What is a good APR for a credit card?

A good APR is one that’s considerably lower than the average interest rate across all credit cards being offered today. APRs on credit cards vary based on credit card type and the types of credit profiles a card is targeted to. The average credit card interest rate can range from around 18% for a low interest credit to around 24% for a secured credit card and can go as low as 0% with a special introductory offer.

However, cards with 0% introductory rates only offer them for a limited time, after which a regular variable APR applies. With that in mind, a credit card that offers a lower-than-average APR on an ongoing basis is still considered “good” by most measures.

It’s also worth noting that credit card interest rates are higher on average than the starting rates on many other financial products like personal loans, so consumers with great credit still may be offered a sky-high rate. Even so, you should try to avoid cards that skew high above these averages.

How to lower your credit card APR

If you’re unhappy with your credit card’s current interest rate, you should know that you have options. Some of the steps you can take to get a lower APR don’t even require you to switch cards or apply for a new one.

If your goal is lowering your credit card’s interest rate, consider any of the following moves:

• Call your credit card issuer and ask: If you like the credit card you have and don’t want to change it, call the number on the back of your card to inquire about getting a lower rate. According to a LendingTree study from April 2022, 70% of consumer requests for a lower credit card APR are ultimately granted by card issuers.
• Improve your credit score: In some cases, your credit score may be the reason your credit card APR is higher than you wish it was. If you can take steps to improve your credit in the short term, you’ll have a better shot at a lower APR whether you ask your card issuer for a lower rate or you apply for a new card altogether.
• Pay off your credit card balance: If you pay off your credit card balance, you won’t have to pay any interest anymore. This step isn’t always possible, especially in the short term, but it’s still worth considering if you are tired of your card’s interest rate.
• Consider a balance transfer: You can also consider transferring your existing debts to a new balance transfer credit card that offers 0% APR for a limited time (up to 21 months). Just keep in mind that you’ll have to pay a balance transfer fee (usually 3% to 5% of the amount you transfer) if you go this route.
• Sign up for a different credit card: You can also look for a new credit card that has a lower variable APR in general. While low-interest credit cards are relatively rare, they do exist.