How Credit-Card APR Works — In Plain Language

APR is one of the most misunderstood parts of credit cards. This guide explains how interest is calculated daily, how promo periods work, and what determines your real borrowing cost.

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What Is APR on a Credit Card?

APR (Annual Percentage Rate) is the cost you pay to borrow money on a credit card. It includes the interest rate and certain fees, expressed as a yearly rate, even though interest is calculated daily.

Some cards offer a 0% intro APR for a set period. After the promo expires, the standard variable APR applies, which depends on the lender's base rate plus your credit profile.

How APR Is Actually Calculated

Credit cards use daily compounding. Here's how it works:

1. Daily rate: APR ÷ 365 = daily periodic rate.
2. Daily interest added: Balance × daily rate.
3. Compound effect: Interest is added to the balance each day.

Because interest compounds, the effective annual cost is higher than the stated APR. Paying your full balance each month avoids all interest.

What Affects Your APR?

Credit-card APR varies widely based on:

Your credit score — better credit usually = lower APR.
Prime/base rate changes — variable APR moves with the market.
Card type — premium & rewards cards often have higher APR.
Balance type — purchases, cash advances & balance transfers have different APRs.

Cash advances typically have the highest APR and often no grace period. Always check each APR category before borrowing.

APR vs. Other Card Costs

Cost Type	What It Means	Typical Range
Purchase APR	Interest on normal purchases	~15–29% variable
Cash-Advance APR	Interest on cash withdrawals	~25–35% with no grace period
Penalty APR	Applied after missed payments	~29–36%
Intro APR	Temporary promo period	0% for 6–21 months

Explore Related Credit-Card Topics

CreditScore.Creditcard

How your credit affects APR & approvals.

Cashbacks.Creditcard

Compare simple cashback structures after fees.

PrepaidCard.Creditcard

Zero-interest payment options with no APR.

Part of The CreditCard Collection

APR.Creditcard is part of The CreditCard Collection — a network of neutral educational minisites by ronarn AS designed to help users understand key credit-card concepts clearly.

This site is purely informational. It does not offer financial advice. Always confirm rates with the card issuer before applying.

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