APR is the yearly cost of borrowing money on a 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 in interest over one year (though the actual amount depends on how quickly you pay it down).

APR is not the same as the interest rate alone. APR includes the interest rate plus any fees the card company charges for borrowing, which is why it is usually higher than the base interest rate. Different cards have different APRs, and the same card can have different APRs depending on what you are using it for — purchases, balance transfers, or cash advances.

The card company is required by law to show you the APR before you open the account and on every monthly statement. It appears in the Schumer Box, a standardized table on the credit card offer that lists key terms.

Key Takeaways

  • APR is the yearly percentage cost of carrying a balance on your credit card, and it varies by card and by type of transaction.
  • If you pay your full balance by the due date each month, you pay no interest regardless of the APR.
  • Different APRs apply to purchases, balance transfers, and cash advances on the same card, and they can change over time.
  • Credit card companies must show you the APR in writing before you open an account and on every statement you receive.
  • A lower APR means you pay less interest if you carry a balance, so comparing APRs between cards is one way to reduce borrowing costs.

How APR is calculated and what it costs you

Credit card companies calculate interest using your APR and your daily balance. Most companies divide the APR by 365 to get a daily rate, then multiply that by your balance each day, then add up those daily charges for the month. This is called the daily balance method, and it is the most common way card companies charge interest.

The actual interest you pay depends on how much you owe and for how long. If you owe $1,000 at 20% APR and pay it off in one month, you pay roughly $17 in interest. If you owe the same $1,000 at 20% APR and make only minimum payments, you might pay hundreds of dollars in interest over several years. The longer you carry the balance, the more interest compounds.

Some cards offer a 0% introductory APR for a set period — often three to twelve months — on purchases or balance transfers. During that period, you owe no interest even if you carry a balance. Once the introductory period ends, the regular APR kicks in, and interest accrues on any remaining balance.

Variable APR versus fixed APR

A fixed APR stays the same for the life of the card (though the card company can raise it with 45 days' notice if you miss a payment or if the introductory period ends). A variable APR changes based on market conditions — specifically, the prime rate set by the Federal Reserve. Most credit cards have variable APRs on purchases.

When the Federal Reserve raises or lowers interest rates, variable APRs usually follow within one or two billing cycles. This means your monthly interest charge can go up or down without you changing anything. Card companies must tell you whether your APR is fixed or variable before you open the account.

In practice, the difference matters most when interest rates are rising. If you carry a balance during a period when the Federal Reserve is raising rates, your APR will climb, and so will your monthly interest charge. If rates fall, your APR falls too.

Different APRs for different uses

Most credit cards have at least three different APRs: one for purchases, one for balance transfers, and one for cash advances. The purchase APR is what you pay when you buy something with the card. The balance transfer APR is what you pay if you transfer a balance from another card. The cash advance APR is what you pay if you use the card to withdraw cash from an ATM.

Cash advance APR is almost always the highest of the three, sometimes 5 to 10 percentage points above the purchase APR. Balance transfer APR often falls between the two. Some cards offer a 0% introductory rate on balance transfers but charge regular APR on purchases, or vice versa.

You should read the card's terms carefully to understand which APR applies to which transaction. The Schumer Box breaks this down, but the full terms document (called the card's pricing information or disclosure) has more detail.

Penalty APR and when it applies

A penalty APR is a higher interest rate the card company can charge if you miss a payment by 60 days or more. The penalty APR can be 10 to 15 percentage points higher than your regular APR. Once the card company applies a penalty APR, it usually stays in place for at least six months, even if you catch up on payments.

You can lose the penalty APR if you make on-time payments for six months in a row. Some card companies will remove it sooner if you call and ask, though they are not required to. The card company must notify you in writing before charging a penalty APR, and they must tell you how to get it removed.

Missing a payment by just a few days does not trigger a penalty APR — the card company can only charge it if you are 60 days late. However, you will still owe late fees and your regular APR will apply to the overdue balance.

How to compare APRs when choosing a card

When you are looking at credit card offers, the APR is one factor among several. A card with a lower APR is cheaper if you carry a balance, but if you pay your full balance every month, the APR does not matter at all — you pay no interest regardless. In that case, other features like rewards, annual fees, or sign-up bonuses may matter more.

If you do carry a balance sometimes, a lower APR saves you money. A card with 15% APR costs less than one with 20% APR if you owe the same amount for the same time. Over a year, the difference on a $5,000 balance is $250 in interest.

Introductory 0% APR offers are worth considering if you plan to pay down a balance quickly. A card that offers 0% APR for twelve months on balance transfers lets you move debt from a high-APR card and pay it down without interest charges during that period. Just remember that the regular APR applies once the introductory period ends.

What APR does not tell you

APR does not include fees that are not related to borrowing — annual fees, late fees, foreign transaction fees, or balance transfer fees. A card with a low APR but a high annual fee might cost 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. A card that charges 18% APR but gives you 2% cash back on all purchases might be a better deal than a card with 15% APR and no rewards, if you pay your balance in full each month and earn the cash back.

The APR shown in an offer is not may provide. Card companies can offer you a different APR than the one advertised, depending on your credit score and credit history. The actual APR you receive will be within the range shown in the offer, but it may not be the lowest rate listed.

Frequently Asked Questions

If I pay my balance in full every month, do I pay interest?

No. If you pay the entire balance by the due date, you owe no interest, regardless of the APR. Interest only applies to balances you carry past the due date. This is called the grace period, and most cards offer it on purchases.

Can a credit card company change my APR without warning?

The card company can raise your APR if you miss a payment by 60 days or more (penalty APR), or if an introductory rate expires. They must give you 45 days' notice before raising your APR for any other reason. Variable APRs can change based on market rates without advance notice, but the card company must disclose that your APR is variable before you open the account.

What is a good APR for a credit card?

APR varies based on credit score and market conditions. As of 2024, average APRs range from 15% to 25%, but people with excellent credit may receive offers in the 12% to 18% range. People with lower credit scores may see APRs of 25% or higher. The best APR is the lowest one you can get based on your credit profile.

Does APR apply to rewards or cash back?

No. APR is the interest rate on borrowed money. Rewards and cash back are separate benefits the card company offers. You earn rewards or cash back on your purchases regardless of APR, but you only pay interest if you carry a balance past the due date.

How does APR work with a 0% introductory offer?

During the introductory period, the APR is 0%, so you owe no interest on that type of transaction. Once the introductory period ends, the regular APR applies to any remaining balance. If you have a 0% APR for twelve months on a balance transfer, any balance you have not paid off after twelve months will start accruing interest at the regular APR.