What is APR – and does yours measure up?

what is aprIf you’ve ever shopped around for credit cards, you’ve probably seen the term “APR”, with lots of associated footnotes. You know it’s related to your interest rates, but most people aren’t sure – what is APR?

APR stands for annual percentage rate, and it is used in all sorts of financial settings where you’re borrowing money, including credit cards, auto loans, mortgages, and more. For credit cards, this represents your interest rate over the course of the year. If you carry a balance on your credit card (meaning you don’t pay your full statement balance down every month), the amount of the interest payments you’ll owe to your card depends on your APR. For those who won’t carry a balance, APR is a less important factor in choosing a card. If you might need to carry a balance, a low APR can save you a lot of money in the long term. It’s important to pay attention to that rate when you’re deciding between credit cards. We’ll tell you everything you need to know to be an expert on your APR options.


What is APR?

APR, or annual percentage rate, is used to calculate what you owe your credit card company if you don’t pay your full bill on time. However, it’s not quite as easy as just multiplying your general APR by your outstanding balance to figure out what you owe. First, you need to get that annual rate down to the rate your credit card will use.

First, divide the APR of your credit card candidates by the number of days in a year, to get your daily periodic rate:

Then, multiply the daily rate by the number of the days in the billing period to get your monthly rate. Finally, multiply that rate by your outstanding balance to find out how much interest you’d owe:

However, when you compare APRs for credit card offers, they’ll all be broken down the same way. To choose between credit cards, no need to do the math – just choose the card with the lowest purchase APR, both during the promotional period and afterwards.

My options list different types of APRs – what do they mean?

Many credit cards have different APRs for different uses of the credit card. So, you may not pay the same interest rate on normal credit card purchases as you would on a cash advance. Here’s a quick guide to the four most common types of APR:

  • Introductory APR: the rate that will be applied during the “introductory” period, when you first get the card. This APR may apply to your purchases, a balance transfer, or any other combination of things during a limited time window.
  • Purchase APR: the rate for your normal credit card purchases.
  • Cash Advance APR: the rate the will be applied to any cash advances you get from your credit card. If you anticipate needing to get a cash advance, make sure to check the fine print here. The rates are often higher, and there may not be a grace period.
  • Penalty APR: the highest rate, which may be used if you violate the terms of your credit card in some way. You could do this by failing to pay at least the minimum due on your credit card bill by the due date, for example.

Make sure to take a close look at all of the card’s types of APR, not just the low introductory rates. Better rates for some of these types may help you differentiate between all the card options out there.

What’s a good APR? What can I expect?

The APRs you’re offered will depend on your credit score, and the cards you’re looking at. Promotions may make APRs for some cards look lower than they’ll be for the long term, so make sure you know what you’re getting into. Right now, the average APR for all cards is 17.15%.

However, this number depends on what kind of card you’re looking at. Especially around the holiday shopping season, beware of tempting offers for store cards, which have a median APR of 25.64%.

If you’re considering a card with an APR above the average, 17.5%, it may be best to keep shopping around. The average low interest card has a rate of only 14.19%, so there are good options out there.


So, what is APR? Your credit card APR determines how much you’ll owe your credit card company if you don’t pay your statement balances down in full and on time. Pay attention to the APRs that you’ll plan to use. For many, that will be your purchase APR. Make sure it’s close to or below the average, especially if you have a good credit score. That score means you should be getting the best rates! Making APR comparisons the key to your credit card choice will help you save money in the long run.

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