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

APR stands for Annual Percentage Rate. It is the interest rate a credit card company charges you when you carry a balance — money you do not pay off in full by the due date. If your card has a 20% APR and you owe $1,000, the card company charges you roughly $200 per year in interest, though the actual amount depends on how long you carry the balance and how you make payments.

APR is not the same as interest rate alone. APR includes the interest rate plus any other costs of borrowing, such as annual fees or origination fees, converted into a yearly percentage. Credit card companies must show you the APR before you open an account, and they must list it on your monthly statement.

The key thing to understand: APR only matters if you carry a balance. If you pay your full statement balance by the due date each month, you pay no interest, and the APR does not affect you.

Key Takeaways

  • APR is the yearly percentage cost of borrowing money on your card; a higher APR means you pay more interest on any balance you carry.
  • Different APRs apply to different types of transactions — purchases, cash advances, and balance transfers often have different rates.
  • Your card may have a promotional APR (often 0%) for a set period, after which the regular APR kicks in.
  • Credit card companies can raise your APR if you miss a payment or if a promotional period ends, though they must notify you first.
  • Paying your full balance by the due date means you owe no interest, regardless of the APR.

How APR is calculated on your monthly balance

Credit card companies calculate interest using your daily balance. They add up what you owed each day of the billing cycle, divide by the number of days, then multiply by the monthly interest rate (which is the APR divided by 12). The result is the interest charge on your next statement.

If you make a payment during the month, your balance goes down, and the interest owed on future days is lower. This is why paying early in the billing cycle costs you less interest than waiting until the due date. Some cards offer a grace period — usually 21 to 25 days from the end of the billing cycle — during which no interest accrues on new purchases if you paid your previous balance in full.

The math can be complex, but the principle is simple: the longer you carry a balance, and the larger that balance, the more interest you owe.

Different APRs for different types of transactions

A single credit card often has multiple APRs. Your purchase APR applies to everyday shopping. Your cash advance APR — the rate for withdrawing cash from an ATM using your card — is usually much higher, often 5 to 10 percentage points above your purchase rate. Balance transfer APR applies if you move debt from another card to this one.

Cards also commonly offer a promotional APR, often 0%, for a limited time on purchases or balance transfers. This period might last 6 months, 12 months, or longer. After the promotional period ends, the regular APR takes over. If you still carry a balance when the promotion ends, you suddenly start paying interest at the full rate.

Always check your card's terms to see which APR applies to which transaction type, and when any promotional period expires.

When your APR can change

Credit card companies can raise your APR in two main ways. A variable APR moves up or down based on changes to a benchmark interest rate set by the Federal Reserve. Most credit cards have variable APRs, so when the Fed raises rates, your card's APR typically rises too within one or two billing cycles.

A fixed APR does not move with the Fed, but the card company can still raise it if you miss a payment by 60 days or more. This is called a penalty APR, and it can be significantly higher than your regular rate. The company must notify you at least 45 days before raising your APR, and you have the right to reject the increase and close the account (though you still owe the balance at the old rate).

Promotional APRs also end on a set date. When the promotion expires, your rate jumps to the regular APR unless the company extends the offer.

How to compare APRs when choosing a card

APR is one factor in choosing a credit card, but not the only one. If you plan to pay your balance in full each month, APR does not matter to you at all — focus instead on rewards, cash back, or annual fees. If you expect to carry a balance, a lower APR saves you real money.

When comparing cards, look at the purchase APR first, since that is what most people use. Check whether the APR is fixed or variable. Look for promotional offers — a 0% APR for 12 months on purchases can save hundreds of dollars if you are paying down debt. Read the fine print to see when the promotion ends and what the regular APR will be.

Also consider your credit score. The APR you are offered depends partly on your creditworthiness. People with higher credit scores typically get lower APRs on the same card than people with lower scores.

What to do if your APR feels too high

If you have a card with a high APR and you are carrying a balance, you have a few options. You can call the card company and ask for a lower rate, especially if you have a good payment history. Some companies will negotiate, though they are not required to.

You can also look for a card with a 0% promotional APR on balance transfers, move your debt to that card, and pay it down during the interest-free period. Be aware that balance transfer fees usually apply — typically 3% to 5% of the amount transferred — so do the math to see if the savings on interest outweigh the fee.

Another option is to stop using the card and pay down the balance as quickly as you can. The less you owe, the less interest you pay, regardless of the APR.

Frequently Asked Questions

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

No. If you pay your entire statement balance by the due date, you owe no interest and the APR does not affect you. This is true even if your APR is very high. The grace period protects you as long as you pay in full.

Can a credit card company lower my APR?

Yes, but they do not have to. You can call and ask, especially if you have made on-time payments and your credit score has improved. Some companies will lower your rate to keep you as a customer. There is no harm in asking, but there is no may provide.

What is the difference between APR and interest rate?

Interest rate is the percentage cost of borrowing. APR includes the interest rate plus other costs of borrowing, converted to a yearly rate. For credit cards, the difference is usually small, but APR is the more complete picture of what you will pay.

If I have a 0% promotional APR, do I pay any interest?

No interest during the promotional period, as long as you meet the terms — usually making on-time payments and not exceeding your credit limit. Once the promotion ends, the regular APR takes over and you start paying interest on any remaining balance.

Why is my cash advance APR higher than my purchase APR?

Card companies charge more for cash advances because they see them as riskier. Cash advances also typically have no grace period — interest starts accruing immediately — and often include a fee on top of the higher APR.