Editorial note: This is a recurring post, regularly updated with new information.
Quick summary
- Annual percentage rate (APR) is the yearly interest rate charged on borrowed funds, specifically for credit cards, and does not include annual fees.
- There are several types of APR, including purchase, introductory, cash advance and penalty APR, each with distinct terms and implications.
- Credit card interest is typically calculated using a daily rate, compounding interest and the average daily balance over a billing cycle.
- Paying your full statement balance by the due date allows you to avoid interest charges, thanks to a mandatory grace period of at least 21 days.
What to consider
- APR rates for credit cards are generally higher than other forms of consumer credit, often exceeding 20% as of late 2024.
- Penalty APRs can be significantly higher and may apply after missed or late payments, requiring consecutive on-time payments to revert to the standard rate.
- Understanding the calculation method for interest charges is essential for managing costs and minimizing debt accrual.
What you'll miss from the article
- A step-by-step example of how to calculate interest charges based on your APR, average daily balance and billing cycle.
