Key takeaways
- A credit card’s interest rate is called its APR — or annual percentage rate — with different rates applied to transaction types that include purchases, balance transfers and cash advances.
- If you don’t pay off your statement in full each month, the amount you carry is compounded daily, which means you’re paying interest on your interest.
- Work to pay off your card balance within your card’s grace period. If you carry a balance, pay it down as often as you can to reduce the overall interest you’ll pay.
Your monthly credit card statement is a summary of your spending and total balance owed. But among its details, you’ll also see references to your card’s APR — or annual percentage rate. With a credit card, APR most often comes into play when you carry a balance. But other transactions, like cash advances and late payments, are also subject to their own APRs, which might be higher than your regular rate.
Learn how credit card APRs work, when an APR might be applied and how good financial habits can help you avoid interest altogether.
What are the different types of APR?
The APR most people are familiar with is purchase APR, but there are several other types of APRs you should be aware of when using a credit card. We break down the definitions of these common APRs below:
Key terms
- Purchase APR
- This is the interest rate applied to general purchases made with your card online, in person or over the phone.
- Introductory APR
- This is a promotional interest rate for a limited period of time that is lower than the card’s regular APR, sometimes in the form of a 0 percent intro APR. It can apply to purchases, balance transfers or both, depending on the card’s offer. Once the introductory period expires, the regular APR applies to any balance that remains.
- Cash advance APR
- This is the rate for borrowing cash with your credit card. A cash advance APR is typically much higher than your purchase APR. And cash advances don’t come with a grace period, which means it’s applied immediately after your transaction is complete. It’s also often applied to convenience checks.
- Penalty APR
- This is an APR that’s typically applied as a penalty by issuers after you’ve missed several payments or are more than 60 days past due on a statement. It can be as high as 29.99 percent, and it’s not removed until you’ve made several consecutive on-time payments required by your issuer.
Credit card APR vs. credit card interest
The APR on your credit card quantifies how much it actually costs to borrow money. Lenders are required to disclose their interest rates as APRs as part of the Truth in Lending Act (TILA). When it comes to other financial products, however, the interest rate and APR may be different.
Let’s say you’re refinancing or taking out a personal loan. For a personal loan, the interest rate differs from the APR because the interest rate refers to the annual cost to borrow money, but the APR takes into account the fees the borrower faces in addition to the annual cost to borrow money.
That’s not the case with credit cards — the interest rate and APR are the same. Your credit card may come with an annual fee or additional fees when it comes to initiating a balance transfer, cash advance or late payments, but those fees aren’t included in the APR.
Fixed APR vs. variable APR
A fixed APR rarely changes, except in the case of a late payment or when an introductory offer expires. The benefit of a fixed rate is that your rate is locked in for a period of time. It makes planning for your payments easier, because you know the rate will stay consistent. However, card issuers can still change a fixed rate at their discretion — they’re simply required to provide notice. Further, fixed-rate credit cards are becoming harder to find.
More often than not, your credit card has a variable APR expressed as a range — such as 17.24 percent to 29.99 percent. A variable APR changes according to the prime rate, a benchmark lenders use to determine interest rates on credit cards as well as other credit accounts, such as loans and mortgages. While a variable rate may not offer the predictability of a fixed rate, it offers the possibility of paying less.
How to find your credit card’s APR
There are a number of ways to find out your card’s purchase APR. For one, it should be in the disclosures of terms and conditions you got at the time you opened your account, along with the APRs for cash advances and your penalty APR.
Your monthly card statement should also state your APR for different kinds of balances toward the end of the statement. If you have an online card account, you can find your APR on the account information section. Or call your issuer directly, using the customer service number on your account.
How to calculate credit card interest using APR
After you’ve learned your card’s APR, you can use it to calculate your card balance’s interest.
Use this formula to calculate the interest applied to your account during a given billing cycle:
Bankrate insight
[daily rate] x [average daily balance] x [days in billing cycle] = credit card interest
Key terms
- Daily
- Find this rate by dividing your credit card’s purchase annual percentage rate by 365 — the number of days in a year.
- Average daily balance
- Add up your balances at the end of each day in the billing cycle, and divide the sum by the number of days in the billing cycle. This is your average daily balance.
- Days in billing cycle
- Your daily rate is then multiplied by your average daily balance, and that number is multiplied by the number of days in the billing cycle. With most issuers, the interest compounds daily.
Spending example
Imagine you’ve completed a 31-day billing cycle, and you’re carrying an unpaid balance of $600 at an APR of 18 percent.
To find your daily rate, you’d first divide your APR by 365. 18 / 365 = .049
To find your average daily balance, you’d then divide your balance of $600 by the number of days in the billing cycle — for this example, we’ll use 31 days.
$600 / 31 = $19.35
Finally, you’ll multiply your average daily balance of $19.35 by your daily rate of .049 and then the number of days in the billing cycle.
$19.35 x .049 x 31 = $29.39
In this scenario, you’d pay $29.39 in interest for that billing cycle — but the longer it takes you to pay, the more interest will add up.
What is a good credit card APR?
APRs vary depending on your credit score and the type of card you’re considering. In general, a good credit card APR is any APR that falls at or below the national average. The best low-interest credit cards on the market offer rates as low as 17.24 percent.
But what matters even more is finding the best purchase APR available to you. If you have a below-average credit score, you may not qualify for the strongest available rates. When choosing credit cards, make sure to look at each card’s full APR range. Compare both the highest and lowest available rates each card offers— and keep your options open. Looking for credit cards from credit unions, for example, is often a great way to find low interest rates and less fees.
How much your APR could cost you
The good news is that interest doesn’t get charged to your account if you pay your balance in full and on time every month. That way, you’re taking advantage of the grace period most card issuers offer to cardholders. This is usually a 21-day period that starts at the end of the billing cycle during which you can pay off your new balance without facing interest charges.
If you do carry a balance on your card, however, you will owe interest. You’ll also lose your grace period for the next several months, even if you carry a balance only for one month. How much interest you’re charged depends on your card’s APR, the size of your balance and the size of your monthly payment.
The average American’s credit card balance was $6,140 in early 2024, and Bankrate estimates the average credit card interest rate now hovers just under 21 percent. Understand that credit card interest compounds, which means it gets bigger the longer you carry a balance.
Here’s how paying only the minimum payment due can affect the interest charges you owe at a range of APRs:
| Minimum monthly payment | Months to payoff | Total interest charges | |
|---|---|---|---|
| $5,910 at 17% APR | $177.30 | 46 months | $2,145 |
| $5,910 at 21% APR | $177.30 | 51 months | $3,037 |
| $5,910 at 28% APR | $177.30 | 66 months | $5,652 |
If you think you might need to carry a balance on your card, use Bankrate’s Credit Card Payoff Calculator to get an idea of how much you’ll end up paying in interest if you make only the minimum payment. You can also see how much money you can save by adding more to your payment each month.
How to lower what you pay in credit card interest
Making a purchase with a credit card offers convenience, especially if you’re trying to build your credit or earn rewards — but interest charges could cost you a lot of money over the long term.
Here’s how you can save money on credit card interest now and in the future:
- Pay your bill in full each month. Most credit cards offer a grace period that begins on the last day of your billing cycle and ends on your payment due date. If you pay off your statement balance before your grace period ends, you aren’t charged interest on those purchases. Most cards allow you to set up autopay so that you never miss a payment.
- Pay your bill early. You don’t have to wait until your billing statement closes to make a payment. In fact, you can reduce interest charges on revolving balances by paying your credit card bill early and reducing your average daily balance throughout the month.
- Sign up for a balance transfer card. Already have costly debt? Consider transferring your balance to a credit card that offers a 0 percent intro APR period. The best balance transfer credit cards offer up to 21 months of no interest before the regular APR kicks in.
- Ask for a lower rate. If you want a lower credit card interest rate, call your issuer and ask. Of course, make sure to know the details of your current APR, statement due date and any current balance you have before you pick up the phone.
The bottom line
If you have a credit card, it’s important to understand what APR is and when it might affect you. If you don’t plan to carry a balance on your credit card, you won’t have to worry about it too much. But if you find yourself needing to carry a credit card balance, understanding your APR will make managing your monthly credit card payments much easier.
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