Credit
Learn what APR means, how it relates to interest rates, and how it can affect the cost of carrying a credit card balance.
APR stands for Annual Percentage Rate. It expresses the annual rate associated with borrowing money.
On a credit card, APR is used to describe the annual rate that can apply when interest is charged to certain balances or transactions.
APR does not mean that you will automatically pay that exact percentage in interest during a year. The amount of interest actually charged can depend on your balance, transaction type, timing, payments, and the terms of the credit card account.
APR and interest rate are related, but they do not always describe borrowing costs in exactly the same way. The difference can depend on the type of credit.
Annual Percentage Rate
Expresses borrowing costs as an annual percentage. For some types of loans, APR can include the interest rate and certain additional borrowing costs. For credit cards, APR is commonly used to express the annual interest rate that applies to a balance or transaction.
Cost of borrowing money
The percentage charged for borrowing money. It describes the interest charged on the amount borrowed and does not necessarily include other fees or costs.
For credit cards: APR is commonly used to describe the annual rate that applies to different types of balances or transactions, such as purchases, balance transfers, and cash advances.
A credit card can have more than one APR because different rates can apply to different types of transactions.
The APR that can apply to regular purchases when interest is charged.
The APR that can apply to balances transferred from another account.
The APR that can apply when borrowing cash through the credit card.
A temporary promotional APR that may apply for a specified period of time.
A higher APR that may apply under certain conditions, depending on the card agreement and applicable rules.
Credit card APR is expressed as an annual rate, but card issuers commonly use a periodic rate to calculate interest. One common approach is to convert the APR into a daily periodic rate.
Using a 365-day year, a simplified version of that relationship can be written as:
For example, an APR of 24% corresponds to an approximate daily rate of:
24% ÷ 365 ≈ 0.0658% per day
The exact interest calculation can vary by issuer and card agreement. Some issuers may use a different day count or balance calculation method.
Try it yourself
Keep the balance fixed at $1,000 and change the APR to see how the approximate daily rate and a simplified 30-day interest estimate change.
24% ÷ 365
= 0.0658%
$1,000 × (0.24 ÷ 365) × 30
≈ $19.73
This is a simplified educational estimate that assumes a constant $1,000 balance for 30 days and uses APR ÷ 365. Actual credit card interest can depend on the issuer's day count, balance calculation method, transaction timing, compounding, payments, fees, and card agreement.
What changed and why?
A higher APR produces a higher daily periodic rate. With the same balance and time period, that generally results in a higher amount of interest when interest applies.
Important to know
Having a credit card with a high APR does not automatically mean every purchase will be charged interest.
When a grace period applies and its conditions are met, paying the statement balance in full by the due date can allow you to avoid interest on eligible purchases.
Other transaction types can follow different rules. Cash advances, for example, generally begin accruing interest from the transaction date, while balance transfers can have different APR and grace-period terms depending on the card agreement.
Key takeaway
APR expresses an annual rate associated with borrowing on a credit card. A higher APR generally means a higher borrowing cost when interest applies, but the amount actually charged depends on the balance, transaction type, timing, payments, and the terms of the account.
Continue learning
Review the basic terms behind credit limits, balances, billing cycles, and payments.