What is APR on a Credit Card?

Credit Card APR (annual percentage rate) reflects the total cost of borrowing money through your credit card; it includes interest charges plus all applicable fees.

Because the figure accounts for fees on top of interest charges, it provides a more accurate picture of your borrowing costs and is different than the ‘interest rate’ on your credit card.

APR on a credit card varies based on the nature of the transaction just as interest rates do.

Different Types of Credit Card APR

A Purchase APR is the one that applies to purchases that you charge to your card, being the most common APR.

A Cash Advance APR applies to cash withdrawals you make directly from your credit card.

It’s usually a few percentage points higher than the purchase APR and interest begins to accumulate as soon as you withdraw the cash.

A Balance Transfer APR applies to an existing balance you transfer onto your credit card from another credit card or loan.

These rates are significantly lower than the purchase APR but are available only for a brief period, after which the purchase APR kicks in. 

How does Credit Card APR Interest Work?

APR expresses your interest cost in annual terms, but conceptualizing it isn’t practical or realistic using this time frame. 

The reason is that your purchases and payments can vary during the year, which can result in wild fluctuations in your interest charges.

As a result, card issuers calculate interest on your card daily for better accuracy.

A standard method they employ to obtain their figures is called the average daily balance methodwhich works as follows:

Step 1: Calculate your daily APR – Divide your APR by 365 to determine your daily rate.

Step 2: Calculate your average daily balance – Sum the ending balances for each day in the billing period and divide the total by the number of days in the billing period.

Step 3: Calculate your interest for the billing period – Multiply your average daily balance by your daily APR and multiply the result by the number of days in the billing period.

It’s important to note that you incur interest charges only if you fail to pay off your entire balance each billing cycle.

Interest will accrue on any balance carried forward to the following period, even if it’s only $1.

Card issuers provide you with a window of opportunity to settle your balance and avoid interest charges called the grace period, which typically lasts 21 days.

Did You Know?

If you consistently fail to pay the minimum payment required on your credit card balance you could be subject to a penalty APR, which is much higher than your purchase APR.

Credit Card APR vs Credit Card Interest Rate

APR encompasses both the cost of the interest on regular purchases you charge to your card and any fees you incur. 

Typical fees that accompany credit card use include the following:

  • Annual fee
  • Over limit fee
  • Foreign transaction fee
  • Late fee
  • Balance transfer fee
  • Cash advance fee

Conversely, the interest rate (sometimes called the posted rate) refers only to the interest you incur on regular purchases – it excludes all fees. 

As a result, the APR on a credit card will always be slightly higher than the interest rate since any fees will raise the total cost of borrowing. 

For example, let’s say you recently acquired a new credit card with an APR of 19.99% and an annual fee of $80.

At the beginning of your first billing cycle in April, you charge $500 worth of purchases.

In this case, the daily interest rate is 0.0548% (19.99% / 365).

Using the average daily balance method, your total interest for the period amounts to $8.22 ((0.0548% x $500) x 30 days).

While interest accrues at 19.99% on your balance, the annual fee further increases your borrowing cost at 22 cents per day ($80 / 365), regardless of how much you charge to your card.

Thus, your actual daily cost is $8.44 ($8.22 + 0.22).

Thus, your APR (up to this point in time) works out to 20.54% (($8.44 / 30 days / $500) x 365).

In the context of credit cards, the term “APR” is often used interchangeably with “interest rate,” even though the two refer to entirely distinct concepts. 

Why is that the case?

The reason is that there’s no reliable way for the lender to anticipate what fees a cardholder will rack up in using their credit card. 

Since each cardholder’s APR can vary considerably, it would be impractical for card issuers to establish a standard APR and disclose it in the cardholder agreement. 

As a result, you can always expect the APR in a credit card contract to match its interest rate.


If your credit score declines substantially since you first applied for your credit card, your card provider can elect to hike your APR.

Credit card statement showing APR

Frequently Asked Questions

  • What is a good APR rate?
  • Does 0% APR mean no interest?
Mark Gregorski

Mark is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.