What is APR on a credit card?

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APR stands for annual percentage rate. It is the amount of interest applied to your credit account when you carry a balance. Your APR is determined by your credit report. If you have a credit score in the good to excellent range, you will likely have a lower APR than someone who has a credit score of fair or below. Your APR is used to determine your interest rate, which is the amount of interest applied to your balance during a billing cycle. All credit cards, except charge cards, have an APR. That said, many credit cards offer an introductory period of 0% APR that ranges between 6 and 21 months.

How APR works

Your APR is a baseline rate that is used to calculate your interest rate. Interest is applied to credit card balances daily. To calculate your interest rate, simply divide your APR by 365 (the number of days in a year). For example, if your APR is 18 percent, your daily rate is .00049 (.18/365). This is the amount that will be applied to your new balance each day until it is paid off.

If you are paying your credit card bill in full every month, you won’t see the impact of APR.  Instead, you’ll be able to enjoy a grace period for new purchases. Grace periods start at the end of your billing cycle and finish when your next payment is due. They usually last around 21 days and they are a period of time when you can pay off new purchases without applied interest. Grace periods are only applicable to accounts with $0 balances. As long as you are paying your credit card off in full each time you use it, you will be able to maintain your grace period.

However, if you are one of the many Americans who carry a balance on your credit card, you will be affected by APR. How much will depend on the size of your balance, and the amount you pay on your balance each month. As of September 2019, the average revolving debt for an American household was $6,849. Have a look at the following chart to see how carrying that balance and making minimum monthly payments will be affected by APR over time.

Minimum monthly payment Repayment timeline Total interest charges
$6,849 at 5.9% APR $207.87 37 months $641
$6,849 at 14.9% APR $207.87 43 months $2,013
$6,849 at 24.9% APR $207.87 57 months $4,800

Note: Figures assume 3 percent minimum monthly payment.

This chart explores the average balance for most American households using Bankrate’s credit card payoff calculator. Use the calculator to learn more about your credit card balance and how long it will take to pay it off.

Different kinds of APR

The APR that most people are familiar with is their purchase APR. However, there are a variety of APRs that can be applied to your credit card account. Here are the main ones that you should be familiar with.

Introductory APR: This is a promotional interest rate offered in the first months of opening a new credit card. It is usually applied to purchases and balance transfers. It will typically be lower than your normal rate and can often be zero percent. Once it’s over, regular interest rates will apply to any balance on your account.

Purchase APR: This is the interest rate applied to all purchases made with your card. Any time you use your card to buy something, whether online or in-store, this amount will be applied.

Balance Transfer APR: This is the interest rate applied to any balance you transfer from one card to another. Balance transfers will often have a temporary promotional rate that lasts for a few months. After this period, the normal rate will be applied to any remaining balance.

Cash Advance APR: This is the interest rate applied when you borrow cash on your credit card. This rate is usually higher than your purchase APR and typically doesn’t have a grace period. This is also the rate usually applied to convenience checks.

Penalty APR: This is the interest rate applied to terms of service violations. It is also applied when a payment is more than 60 days late. It is usually the highest APR that can be applied to your account.

Fixed vs. variable APR

Another aspect of APR to understand is that it can be fixed or variable. A fixed APR is one that almost never changes. The exception might be if you have a late payment of more than 60 days, or if the fixed APR was part of an introductory offer. It is very rare to find a credit card that offers a fixed APR. More often than not, your credit card will have a variable APR instead. A variable APR rate changes when the prime rate changes.

The benefit of a fixed rate is that your rate is locked in for a period of time. This makes planning for your payments easy because you always know your rate. However, fixed rates are usually promotional, meaning after the time period passes your rate will become variable. Fixed rates are also not really fixed, and a card issuer can change them if they choose. The only stipulation for that change is that the issuer has to give you notice.

With a variable rate, your rate may increase, but it may also decrease. The rate amount is tied to the market, which you can keep tabs on to have an idea of what to expect from month to month. While a variable rate may not offer the predictability of a fixed rate, it offers the possibility of paying less interest when the market makes a downshift. Variable rate credit cards are also the norm, which means you may be searching for a while before you find a fixed rate card.

The bottom line

Your APR is a key part of understanding your credit card bill. If you don’t plan to carry a balance on your credit card, you won’t have to worry about it too much. However, if you are among the many people who do carry a credit card balance, understanding your APR will make budgeting for your monthly credit card payments much easier.