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What Is an APR?

10 min read

Last Updated: October 15, 2025

Table of contents

Key Takeaways

Your annual percentage rate (APR) determines how much your credit card company charges you for interest.
In addition to the standard purchase APR, your credit card account may have other APRs, like an introductory, cash advance, or penalty APR.
You may minimize your interest on a high-APR card by paying the full balance on time every month.

You may have heard that you should look for a credit card with a low APR, which stands for “annual percentage rate”. It’s good advice, but what does it mean, exactly? The APR on your credit card or loan determines how much interest you pay for borrowing money. Interest is one way that lenders like banks, credit unions, and credit card issuers make money.

If you pay your credit card bill in full each month, the APR may not affect you very much. But if you tend to carry a balance, your card’s APR plays a major role in determining the overall cost of using your credit card.

What does APR mean?

APR stands for “annual percentage rate”, which is the yearly rate a lender charges you for borrowing money.

A credit card’s APR is typically the same as its interest rate. Many credit cards charge a different APR for different types of transactions, but the standard APR determines the interest you’d pay for everyday purchases.

The APR and interest rate aren’t necessarily the same for other types of credit. For example, a mortgage APR typically covers the overall cost of borrowing money, including fees, like origination fees, mortgage insurance, and broker fees, according to the Federal Trade Commission.

For credit cards, annual fees may be separate from the APR.

Where do you find your credit card APR?

You may find your credit card APR in a few locations:

Your credit card agreement. Card issuers may have to inform you of your card’s APR before opening your account.
Your monthly statements. There’s typically a section on your credit card statement explaining your APR calculation and breaking down your interest charges (if applicable).
Your mobile banking app or online portal. If your credit card company has a mobile or online portal, you may log in to find the most up-to-date APR.

How do you calculate monthly interest?

While APR is an annual rate, the interest on your credit card is typically charged daily, and you pay it monthly. Here’s how to calculate your monthly credit card interest:

Divide your APR by the number of days in the year to get your daily periodic rate.
Add up all your daily balances for the month, then divide that number by the number of days in that month. This is your average daily balance.
Multiply your average daily balance by your daily periodic rate to get your average daily interest.
Finally, you multiply your average daily interest by the number of days in your billing period to determine your total interest charges for the month.

Keep in mind that credit cards often have compound interest, so interest charges are added to your balance daily and interest gradually builds.

Fortunately, you don’t have to do the math on your own every month. Your credit card statement should include information about your daily balances and interest charges. You may also calculate your interest charges with online interest calculators.

Types of credit card APRs

Your credit card may not have a single APR. Many cards come with different interest rates for different circumstances and transactions.

Standard purchase APR

Your card’s standard purchase APR determines the interest rate you pay for everyday purchases, like groceries or gas, if you don’t pay the balance in full by the due date. The standard purchase APR is usually what people mean when they refer to a card’s APR or interest rate.

Introductory APR

Some credit card issuers offer low APR promotions for new cardmembers. A low introductory APR may be much lower than the standard interest rate. If you have a strong credit score, you may even qualify for a 0% APR.

A card’s introductory APR lasts for a set number of months after account opening. Some introductory APRs only apply to balance transfers, while others may apply only to purchases.

If your credit card has a 0% introductory APR, then any balance you carry within the promotional period won’t accrue interest. This may be especially helpful for expensive purchases, like furniture.

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But it’s important to make sure you repay your balance in full before the lower APR expires. Any remaining amount begins accruing interest at the standard rate.

Balance transfer APR

A balance transfer means moving your balance from one loan or credit card to another. You may want to transfer a balance to get a lower interest rate, which may make it easier to pay down your debt. If you currently have high-interest credit card debt, it may make sense to transfer the balance to a card with a low balance transfer APR introductory offer. Note that your interest rate for purchases may be higher than the interest rate for transferred balances.

Balance transfers generally aren’t free. Most credit card companies charge a balance transfer fee, often a percentage of the amount you transfer. Before you move your balance, you may want to make sure your interest savings offset the costs.

To save money on interest, try to pay off your balance completely before the introductory period ends. Otherwise, your debt may become difficult to manage again.

Cash advance APR

A cash advance lets you withdraw money from an ATM or bank, or through an online transfer to your checking account using your credit card. Unlike a cash withdrawal with a debit card, a cash advance is a loan against your line of credit, which means it accrues interest. Credit card issuers may charge a higher interest rate for a cash advance. Plus, interest might start accruing as soon as you withdraw money.

You may have to pay additional fees on top of interest charges, like cash advance and ATM fees, making cash advances a particularly expensive way to borrow money.

Penalty APR

Your credit card company may charge you a high penalty APR if you don’t pay your credit card bill on time or miss multiple payments in a row. Depending on your card issuer’s policy, your balance may accrue interest at the higher rate for several months until you make a payment.

Not all credit cards charge a penalty APR. Check your cardmember agreement for details about your card.

Can your APR change?

Yes, your APR may change for several reasons. For example, if your credit card came with a low intro APR, the APR will increase when the introductory period expires. Your card issuer may also raise your APR if your credit score goes down or lower it if your credit score goes up.

But a new APR shouldn’t catch you by surprise. Under the Truth in Lending Act, card issuers must give you a 45-day notice before changing your APR, unless the change has already been specified in writing (like your card agreement).

For example, if you signed up for a card with a variable APR, it may change based on the prime rate, or the baseline rate that a financial institution uses to determine its interest rates. Fluctuations in a variable APR don’t require advance notice since they’re outlined in your credit card agreement. A credit card with a fixed APR shouldn’t fluctuate unexpectedly.

What’s a good APR for a credit card?

What constitutes a good APR depends on your personal credit background and the type of credit card you want. A wide range of factors influence credit card APRs, from economic trends to the type of credit card to your credit history. A card with a high rewards rate or one that’s geared toward people without much credit history may have a higher APR on average, for example. You may want to compare the APR ranges in the current terms of any cards you’re considering to find the most competitive APR for you.

Did you know?

Your APR offers depend on your credit score. Credit card pre-approval or pre-qualification may give you an idea of the APRs you might qualify for from various card issuers—without a hard credit check that may impact your credit score.

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Can you improve your APR?

Yes, you may improve your APR. Your credit history typically influences the interest rate you receive. Boosting your credit score may help you qualify for a lower APR. You may be able to build a strong credit score by making on-time payments each month and keeping your balances low, if possible.

If your credit score has improved since you opened your credit card account and you’ve never missed any payments, you may be able to request a lower interest rate from your credit card issuer.

How does APR affect credit card payments?

Your APR may have a big effect on your credit card payments if you tend to carry a balance. If you have a high APR, then a significant portion of your payments may go toward your interest charges, especially if you only make the minimum monthly payment. You might have to make bigger payments to chip away at your balance. A high-interest credit card may take longer to pay off than a card with lower interest.

If you want to know how long it may take you to pay off your balance with interest, or how much you need to pay each month to clear your debt by a certain date, you may use the Discover^® Credit Card Interest Calculator to do the math for you.

Can you avoid interest on a credit card?

Yes, you may be able to avoid interest on a credit card by paying your entire credit card statement balance in full every month.

Many credit card issuers offer a “grace period” on purchases between the end of your billing cycle and your payment due date. If you consistently pay your entire statement balance by the due date, then you may not be charged interest on new purchases within the grace period. But if you pay less than the full balance, you may lose the grace period for that month.

Grace periods may not apply to other types of transactions, like cash advances. Not all credit card companies offer a grace period, so it’s important to confirm by checking your cardmember agreement.

Avoiding interest on your credit card may not only save you money but also help you make the most of your credit card rewards, as interest charges may cut into your cash back.

The bottom line

If you don’t pay off your entire balance every month, then your card’s APR likely plays a major role in determining how much it costs you to use your card. It’s important to stay on top of interest charges, especially if your card has a high APR. Otherwise, debt might pile up quickly.

Even if you have to carry a balance sometimes, making more than the monthly minimum payment may help you stay in control of your credit card debt.

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