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When I check my monthly credit card statement, I see a reference to APR . APR stands for Annual Rate and refers to interest on credit accounts.

For credit cards, APR mostly affects if you have a balance, but other transactions — such as cash advances and late payments —

With a credit card Anyone with an APR should know how the APR works, when the APR applies, and how good financial habits can help you avoid the APR.

How APR works

Credit card APR usually refers to the interest applied to your account during a particular billing cycle. Her APR for credit cards is calculated as follows:

[Daily Rate] x [Daily Average Balance] x [Billing Cycle Days] = Credit Card Interest

  • Daily Rate: Credit Card Interest Divide the annual purchase rate by 365 (the number of days in a year). For example, if your APR is 18%, your daily rate is 0.00049%.
  • Average Balance Per Day: At the end of each day of your billing cycle, total your balance and divide the total by the number of days in your billing cycle. This is your average daily balance.
  • Billing Cycle Days: Multiply the daily rate by the average daily balance, then multiply that number by the number of billing cycle days. billing cycle. Interest is compounded daily for most issuers.

What types of APRs are there?

The APR most people are familiar with is the Purchase APR.

  • Purchase APR: This is the rate applied to all purchases made with your card online. , in person or by phone.
  • Introductory APR: A limited-time promotional interest rate that is lower than the card's regular annual interest rate, which may be 0% per annum. Applicable to purchases, balance transfers, or both. After the introductory period ends, his normal APR will be applied to his balance.
  • Cash APR: The rate to borrow cash from a credit card is usually higher than his APR of the purchase and there is no grace period. It is also commonly applied to convenience checks.
  • Penalty APR: This applies to unpaid or refunded payments, which can reach 29.99%. You may have to make several consecutive on-time payments before your credit card issuer removes the penalty APR. If you are more than 60 days past due, APR penalties may also apply to your current balance.

Credit Card APRs and Credit Card Interest

The truth of lending law requires lenders to disclose their interest rates as APRs. A credit card's APR is a quantification of how much it actually costs to borrow money. Other financial instruments may have different interest rates and APRs.

For example, let's say you're refinancing or taking out a mortgage. The interest rate is different from his APR of a loan because it refers to the annual cost of borrowing money, but the APR takes into account the annual cost of borrowing money plus all the fees a borrower faces. can enter. But that's not the case with credit cards. Interest rate and her APR are the same.

Credit cards include balance transfer, cash advance, or

Comparison of Fixed APR and Variable APR

Fixed APR is rarely changed. The advantage of a fixed interest rate is that the interest rate is fixed for a certain period of time. Knowing that the rate usually stays constant makes it easier to plan your payments. However, the card issuer may change the fixed rate at its sole discretion. It just needs to provide notification. Plus, it's getting harder and harder to find fixed-rate credit cards.

Credit cards often have a variable APR that covers a certain range, such as 15.49% to 25.49%. Variable APR varies according to the prime rate. A prime rate is a benchmark that lenders use to determine interest rates on credit cards and other credit accounts such as loans and mortgages. Variable rates may not offer as much predictability as fixed rates, but they may pay less.

APR interest is How Much Will It Cost?

The good news is that if you pay your balance in full and on time each month, this interest will not be charged to your account. If you do this, you also get the benefit of the grace period. This is typically a 21-day period starting at the end of your billing cycle during which you can pay off your new balance without being charged interest.

However, if you have a balance on your credit card, interest will accrue. Also, even if you only have one month's balance, you'll lose the grace period for the next few months. The amount of interest charged depends on the card's APR, balance size, and monthly payment size.

The average American credit card balance in 2021 is $5,221, Bankrate estimates. The average interest rate on credit cards is now over 19%. It's important to remember that credit card interest is compounded and increases the longer you maintain the balance.

Here are some scenarios with different APRs. If your card does not incur additional charges:

Minimum monthly payment (3%) Repayment schedule Total interest rate
$5,315 at 12% p.a. $159 41 months $1,186
$5,315 at 16% p.a. $159 45 months $1,768
$5,315 at 24% annual interest $159 56 months $3,551

If you have a balance, you can Use our credit card payoff calculator to calculate how much interest you'll end up paying if you make only the minimum payments. You can also see how much you can save by adding it to your monthly payment.

How to Reduce Credit Card Interest

Shopping with a credit card has many benefits. Be careful, especially if you want to build credit or earn rewards, but interest can cost you a lot.

The strategies highlighted below can help you save current and future credit card interest.

  • Pay your credit card bill every month. Most credit cards have a grace period from the end of the billing cycle until the due date. If you pay off your statement balance before the end of the grace period, you will not be charged interest on those purchases. Most credit cards let you set up automatic payments so you never forget to pay.
  • Pay your bills early. Don't wait until your bills are due. In fact, you can reduce interest on your revolving balance by paying your credit card bills early and reducing your average daily balance for the month.
  • Sign up for a balance transfer card. Already in high debt? Consider transferring your balance to a credit card that offers a 0% initial APR period. The best balance transfer credit cards offer interest-free for up to 21 months before regular APR starts.
  • Request a lower rate. If you need a lower credit card interest rate, you can call and ask. Of course, before contacting your credit card issuer, check your current APR, statement due date, and current balance details.


If you have a credit card, it is important to understand what APR is and when it affects you. If you don't plan on carrying credit card balances, don't worry too much. However, if you need to maintain a balance on your credit card, understanding your APR will make it much easier to budget for your monthly credit card payments.